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Bank profits important as global uncertainty grows

Sydney, 3 November, 2011: Ongoing uncertainty in Europe and the patchwork economy in Australia highlight the need for a solid, healthy and profitable banking system that keeps savings safe and continues to lend to Australian businesses and households. Steven Mnchenberg, Chief Executive of the Australian Bankers Association (ABA), said: Banks have now reported their results. As large businesses, banks always attract debate about their profits. Healthy profits highlight the strength and stability of our banking system. A solid and reliable banking system underpins our economy at a time when countries overseas are still dealing with high unemployment, poor business conditions, negative economic outlooks and depressed consumer sentiment. This is the result of the continuing impacts of the Global Financial Crisis (GFC). Unlike overseas, banks here did not fail, nor did they require Government bail outs. Australias healthy banks continue to keep our savings safe and to make loans which keep the Australian economy moving. There are critics who say banks are making excessive profits, but they have their facts wrong. Mr Mnchenberg said: There is no evidence banks are making excessive profits. A standard measure of profitability return on equity shows banks are in the middle of the pack compared to other industries. Of the 50 most profitable companies listed on the ASX, only two are banks. When viewed against the size of the asset base, bank revenue is relatively low. Bank revenue is only about 5% of total bank assets. Profits represent just 1% of bank assets. Banks also make a large contribution to the Federal Governments tax coffers. Banks contribute more corporate tax than any other industry in Australia. In the last five years, banks have paid $42 billion in tax, plus an additional $3 billion for the Governments bank funding guarantee, Mr Mnchenberg said. The majority of bank profits are paid to ordinary Australians. The great majority of bank shares are held by households, either directly or indirectly through their superannuation funds and retirement savings. Bank shares are a mainstay of super fund investment given the stability of earnings and relatively high dividends. These returns help people earn income for their retirement. Banks have paid out $50 billion of dividends to shareholders over the past three years. Banks also have to make revenue to pay their depositors interest, especially as savings have hit record highs. Savers, including those with bank deposits and bond holders, get the biggest slice of bank income last year 61 cents in every dollar of bank income went to pay these depositors and investors, Mr Mnchenberg concluded. For more information please read the ABA fact sheet Bank Profits - Frequently Asked Questions: www.bankers.asn.au/profitsFAQ For further information: Heather Wellard, ABA PR. T: 02 8298 0411 Mobile: 0409 830 439 ENDS