Australia's four major banks — Commonwealth Bank, Westpac, NAB, and ANZ — collectively earn profits approaching $30 billion annually, making them among the most profitable banks relative to the size of their home economy anywhere in the world. These profits attract criticism during periods of household financial stress, but they also reflect the specific structural features of Australian banking — and they carry important signals for the broader economy.

Where the Profits Come From

Australian bank profits are driven primarily by net interest margins — the difference between what banks pay for deposits and what they charge on loans. When the RBA raised rates sharply through 2022 and 2023, lending rates rose faster than deposit rates, expanding margins significantly. This "repricing lag" is a feature of banking business models that regulators and politicians have examined closely. The major banks have argued that their margins reflect a competitive market and are necessary to maintain the capital buffers required by APRA's strong prudential framework.

Capital Strength

APRA requires Australian banks to hold capital significantly above the Basel III international minimum — a policy that has its roots in the lessons of the 2008 global financial crisis. Australia's major banks are consistently rated "unquestionably strong" by APRA under its capital adequacy framework. This capital strength means the banking system is a source of stability for the broader economy, rather than a potential amplifier of financial stress. The trade-off is that well-capitalised, oligopolistic banks tend to be profitable ones.

Mortgage Competition

The mortgage market has become significantly more competitive over the past decade, driven by digital challenger banks, non-bank lenders, and the mortgage broker channel. The major banks' share of new mortgage originations has declined as a result. This competition has compressed margins on new lending even as the overall net interest margin has expanded on the back of rate rises — a nuance that the "record profits" narrative sometimes obscures. Borrowers willing to shop around can access rates meaningfully below the major banks' standard variable offerings.