Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

The bank trouble started decades ago

The profitability of Australia’s finance industry - dominated by our big banks - has trended down over recent decades. The return on shareholder funds peaked in the early 1990s after the recession of 1991 and the crash of several banks.

The big players could see non-bank finance sectors growing much faster than banking revenues, and the exhibit below shows their concern eventuated. These days, banking accounts for less than a quarter of the industry’s total revenue of over $700 billion.

So, the big players diversified into the growth and other finance sectors which they did not understand. They became theme conglomerates and hoped that concentric marketing to existing customers would create greater profits.

They didn’t and, like all conglomerates, were difficult to manage. The diversified sectors require different IP, different cultures, semi-autonomy and face different competitors.

The gains began to go to the employees, especially C-suite execs, salespeople, business development executives and brokers more than the shareholders. As competition grew, greed and cheating began and followed the apocryphal 'boiling frog' syndrome over the past decade in particular.

Our regulators have been shown to have abrogated their responsibilities, making us wonder what $5 billion taxpayers’ money has achieved over a decade or so. Many if not most boards at the big end of town are red-faced.

The Hayne Royal Commission has been thorough, fearless and reformative. The big financial institutions may now go back to being more focused than conglomerates, more ethical, easier to manage, and more transparent to their boards. Just in time to face the new challenge - which isn’t faster growth on the other side of the fence appearing to be greener – but digital disruption. These include online financial services, blockchain and other daunting challenges.

 

Phil Ruthven is Founder of IBISWorld and is recognised as one of Australia’s foremost business strategists and futurists. 


 

Leave a Comment:

     

RELATED ARTICLES

3 key risks: banks are too big to behave badly

Inside view: Will the Hayne Report bring real change?

What you think the Royal Commission missed

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Superannuation

How to prevent excessive superannuation balances

There is an alternative, simpler approach which could be used to mitigate some of the difficulties that the proposed super tax has for holders of large assets such as properties, businesses and farms in SMSFs.

Shares

US shares: Ambitious multiples on ambitious EPS forecasts

Here's a detailed look at how current valuations and profit forecasts for the S&P 500 stack up versus history. The answer? Both seem excessive, making the market vulnerable to a correction or worse.

Taxation

Family trust tax: When is a loan not a loan?

A recent ruling could change the tax payable by beneficiaries of family trusts. If the ATO has previously demanded extra payments on unpaid present entitlements in your family group, you should watch this space.

Property

Things you must consider before subdividing a property

Subdividing can offer a lucrative first step into property development. Yet it comes with legal, planning and unexpected tax considerations that should be understood from an early stage to avoid surprises.

Investment strategies

5 insights that put market volatility in perspective

Though it may feel like this time is different, markets have shown resilience throughout history when confronted by wars, pandemics and other crises. In many cases, the best course of action has been none at all.

Strategy

Concerns about China's rise to power seem overblown

China has always managed its affairs in a very different way to Western countries and empires. For those concerned about China's rise as a global power, the big question is whether this approach could change.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.