Banks profits similar to Canadian lenders

Australia's big banks are slightly more profitable than their big six Canadian
counterparts, which consistently rank alongside the local lenders as the world's
safest banks.
North American banks have yet to report annual 2010 earnings, but in 2009 Canada's
major banks gave their shareholders an average return on equity (ROE) of 12.1 per
cent, according to PricewaterhouseCoopers' (PWC) most recent Canadian industry
survey.
ROE measures the amount of net income returned as a percentage of shareholders
equity, and has been a metric cited in the current local debate over banks' profits,
interest rates and fees.
The accounting firm's Canadian unit reported that ROE in 2009 ranged from 9.1 per
cent for Toronto-Dominion Bank and Canadian Imperial Bank of Commerce (CIBC) to 16.9
per cent generated by Bank of Nova Scotia.
ROE for Australia's big four banks averaged 13.7 per cent in 2009, with Commonwealth
Bank (CBA) delivering the highest ROE of 15 per cent and ANZ Banking Group the
lowest at 10.3 per cent.
In 2010, the big four's average ROE rose to 15.9 per cent, but is still well below
pre-financial crisis levels of more than 20 per cent, according to recent analysis
from KPMG.
The Canadian majors in 2009 produced combined annual profits of over $C14 billion
($A13.9 billion), equal to the $A13.9 billion for the big four local banks.
Combined profits for the Australian majors jumped 51 per cent to $A20.7 billion in
2010 as impaired loans declined.
The six Canadian majors are relatively smaller by market capitalisation than
Australia's big four, with only Royal Bank of Canada matching CBA's market cap of
$C77 billion.
At a market cap of $C52 billion, Toronto-Dominion Bank is around the same size as
National Australia Bank, the smallest local lender.
The remaining four major Canadian lenders are smaller again.
Canada's banks rate alongside Australia's as some of the world's safest, according
to Global Finance magazine.
The Canadian majors have strong credit ratings of A+ or double-A minus compared to
the local banks' double-A ratings.
The big six sailed relatively smoothly through the crisis thanks to a similar
regulatory environment to Australia's, and like the big four, they suffered an
increase in impaired loans.
But Canadian banks heavy reliance on retail deposits over wholesale funding which
has made them less susceptible to the spike in wholesale funding costs, PWC says.
This spike hit Australia's banks during the financial crisis, prompting them to
raise interest rates.
CBA said last week it expects its funding costs to plateau within nine months.