International Comparisons of Bank Margins – August 1994 4. Conclusion

  1. The data compiled by the Bank cover roughly comparable banks in several countries, as opposed to the widely diversified banks lumped together in some publicly-available data bases. The data are still far from satisfactory, given the impracticability of standardising fully for the many differences in arrangements that exist among countries. Any conclusions drawn from the data should therefore be treated with considerable caution.
  2. For what they are worth, the data suggest three broad conclusions so far as Australian banks are concerned:
  • net interest margins tend to be relatively high;
  • non-interest income tends to be relatively low; and
  • overall income, costs and profitability tend to be broadly similar to those for comparable full-service banks in other countries.
  1. The scope for interest margins to fall in Australia has been constrained because interest income has been used to subsidise under-priced services, in part reflecting strong consumer resistance to fee-for-service pricing. As competition increases and puts greater pressure on banks to raise fee income, this cross subsidisation is likely to diminish, lowering margins in the process. Over time, competitive pressures are likely to see Australian banks move to international benchmarks for both interest margins and non-interest income.

The Appendices [1, 2 and 3] to this submission are available separately from the RBA on request.