Banks underpin domestic retirement savings

The strong financial performance of domestic banks is providing a major platform that Australians are using to build up their retirement savings.

Australians are preparing to fund their retirement years on the back of investments in banks through direct shareholdings or membership in superannuation funds that own bank stocks.

And the banks themselves have proved a solid investment as figures provided by the Australian Bankers’ Association (ABA) show they will pay approximately $10.1 billion, out of a profit pool of $13.8 billion, in dividends to investors this year.

Of these dividends it is estimated $4.4 billion, or 32 per cent of profits, will be distributed to people who are superannuation fund members, while $2.5 billion, or 18 per cent of profits, will be paid out to those investors that hold bank shares directly.

When compared to the domestic stock market as a whole, the banking sector has also led the way in profit growth with an increase of 21 per cent over the past year as opposed to a 13 per cent rise in the S&P/ASX 200 index.

According to the ABA, the banks are continually posting large profit results by taking advantage of the healthy state of the Australian economy as they generate the bulk of their income through credit facilities offered to consumers and businesses.

The banks have also managed to source income offshore, with close to 25 per cent of their profits now coming from overseas.

Coupled with these income streams, the banks have also managed to streamline their operations and in turn reduce operating costs through practices such as increased electronic banking.