Australia's Westpac says Big Four banks are not 'highly profitable'

[SYDNEY] Westpac Banking Corp on Wednesday rejected assertions that Australia's four major banks are highly profitable, contradicting the government's chief economic advisory body which earlier this month said the banks were too powerful.

Australia's second-largest bank by market size said that despite the "Big Four" - Westpac, Commonwealth Bank of Australia , National Australia Bank and Australia and New Zealand Banking Group - producing large profits, their return on equity had fallen over the past decade.

"It is true that, as a sector, we make large dollar profits, but that does not necessarily equate to being highly profitable," CFO Peter King told the country's productivity commission.

"The returns do not stand out compared to Australia's largest listed entities and are in-line with other leading and comparable banking systems globally." The Big Four hold about 80 per cent of the Australian banking market, according to the commission.

They have come under fire over allegations of misleading financial advice, insurance fraud and interest-rate rigging, and accusations of breaching anti-money laundering rules.

A government-backed inquiry is set to start scrutinising their lending practices from next month.

Research published ahead of the inquiry said the four major banks were among the most profitable lenders in the world, earning profit margins of 36.4 percent in the June quarter of 2017. Returns on equity after tax were 13.6 percent.

The Productivity Commission has said the Big Four are more profitable than their smaller rivals, partly because the banking regulator had focused on stability at the expense of competition.

Westpac posted a record cash profit of A$8.06 billion ($6.3 billion) for the year ended Sept 30, missing market expectations. Its net interest margin, a barometer of profitability, was down 4 basis points to 2.06 per cent as competition eroded the benefits of higher mortgage rates.

Australia's major banks have posted record profits for years on the back or mortgage lending, but they are now starting to feel the pinch of a softening property market, weak retail sales, heightened competition and tighter regulation.

REUTERS