• Internal Code :
  • Subject Code : BFF2401
  • University : Monash University
  • Subject Name : Accounting and Finance

Banks’ Performance Analysis


It is very important to analyse the performance of the banks because it enables to check the financial soundness and make forecast about the future prospects of banks. There are three major parameters which describes the performance of the banks. They are: profitability, liquidity and productivity. Ratio analysis is considered optimal to compare bank groups on the basis of these three parameters.

graphs shows Return on Equity and Return on Assets


graph shows Leverage Ratio

Trend And Peer Analysis

Here, the relative performance of the top four leading banks in Australia has been looked after. The banking sector in Australia is dominated by four major banks:

  • Commonwealth Bank of Australia

  • Westpac Banking Corporation

  • Australia and New Zealand Banking Group

  • National Australia Bank

Three different performance ratios have been calculated for the last six years from 2014-2019.

One of the important ratio is return on assets which gives us information about the profitability of the bank. It shows how much income is generated from the assets of the bank. It is calculated as:

Return On Assets = Operating Income ÷ Total Assets

The second important ratio is return on equity which is also a measure of profitability. Its shows how efficiency the bank is generating income from the equity. It is calculated as:

Return On Equity = Net Income ÷ Average Shareholders Equity

Leverage ratio tells us the ability of the banks to meet its financial obligations. This leverage ratio is a measure which ensures that there is adequate capital in the banks. It is calculated as:

Leverage Ratio = Total Capital ÷ Total Assets

These all three ratios are very useful as they helps to compare against the peers.

Commonwealth bank of Australia is ranked first among all the other banks. It has a high return on assets (R0A) in comparison to all the other banks throughout the last six years, that is from 2014 to 2019. It is observed that the return on assets is continually falling which can be attributed to the fall in the operating income from year to year basis.

Also, Commonwealth bank of Australia is at the top rank in return on equity (ROE). It has a high a very high return on equity in comparison to the other banks. National Australia bank has a relatively low return on equity throughout the last six years. It is noted that the return on equity is falling year after year. The return on equity of Commonwealth bank of Australia in 2019 was 12.21% in comparison to 18.7% in 2014. This fall in the return is due to the decline in aggregate profits over the years.

Comparatively, Commonwealth bank of Australia has a low leverage ratio throughout the period from 2014 to 2019. Whereas, Australia and New Zealand banking group has a high leverage ratio from last six years among the top four banks in Australia. The high leverage ratio gives insight that the top major banks of Australia has tried to maintain strong capital position. The banks are trying to meet the requirements of APRA capital adequacy benchmark ratio (National Bank of Australia Ltd, n.d.). It can be seen from the graph that the capital regulatory requirement is increasing year over year.

The major uses of funds in these top four Australian banks are loans and advances, home mortgages, commercial loans, bank accepted bills, commercial bills, promissory notes, corporate bonds and debentures, interbank lending, securities including government securities, other bank securities, corporate bonds, securitised assets and foreign currency . With the help of the annual report, it can be said that the total funding has been increased by all the four banks.

The increased regulatory capital requirements by APRA and the weaker earning growth is imposing challenge for the majors in the banking sector. It is difficult for the top Australian banks in maintaining the shareholders expectations for high returns on equity.

The Commonwealth bank of Australia focuses on four key strategies to boost the business performance and growth (Common Wealth Bank of Australia, n.d.). They are customer service, business banking, technology and operational excellence and trust and team spirit.

With slowing revenue, decline in profits, increased regulatory costs and margin pressure, the results underscores a challenging environment of regulation and operation for the top four Australian banks. It is expected that when the banks will reshape their operations due to this challenge in new era of industry transformation, they will turn out to be more efficient and with more simpler and transparent business models.

Non Financial Risk

Financial risk can be defined as all the events within the financial market which affects the participants. Whereas, the non financial risk is the risk which is outside the market and cannot be controlled. Some of the non financial risks are:

  • Legal risk

  • Operational risk like fraud, disaster, internal controls failure or audit system failure

  • Model risk

  • Regulatory risk

  • Accounting risk like changes in IFRS, comparability issues etc

  • Settlement risk

  • Tax risk

  • Political risk

One of the current non financial risk which affected the Australia’s banking sector is bushfire which started from September,2019. This fire had an adverse impact on the Australian economy. Many buildings, lands and houses were destroyed. There was a huge loss and destruction to family, businesses and property.

The Australian banks are impacted by these bushfires. They are facing the problem of credit losses. There is an increase in the credit losses across the banks of Australia. Also, in the future, delinquencies from portfolio are expected (Akhter & Daly, 2017). It is expected that credit losses from loans to the tourism and agricultural sector will rise. This is because these sectors comprise 10 percent of Australian bank lending system. Lapsed Insurance policies will also worsen the credit losses.

The other, very recent non financial risk faced by the Australian banks is the spread of deadly corona virus. This virus had an huge impact on the world. There is an increase in the credit losses. It is expected that the credit losses will increase by double due to this pandemic. S&P had forecasted that the Australian banks can absorb this increase in credit losses and the disruption caused in the funding process (Howden & Zammit, 2020). It is expected that the major Australia banks have the capacity to issue bonds in order to supplement their funding. The majors have a good level of liquidity in their balance sheets as compared to other banks in Australia.


The glance on the performance of the four major banks in Australia with the help of three important ratios helped us to analyse and compare them on the basis of profitability, productivity and liquidity. It is expected that with the challenge faced by the banks in the new era of technology will make them to grow more efficiently and with better business models.


Akhter, S., & Daly, K. (2017). Contagion risk for Australian banks from global systemically important banks: Evidence from extreme events. Economic Modelling, 63, 191-205.

Australia and New Zealand Banking Group. (n.d.). Annual Reports archive. Received from https://www.anz.com/shareholder/centre/reporting/annual-report-annual-review/

Common Wealth Bank of Australia. (n.d.). Annual Reports. Retrieved from https://www.commbank.com.au/about-us/investors/annual-reports.html

Howden, M., & Zammit, K. (2020). Economic overview. Agricultural Commodities, 10(1), 12.

National Bank of Australia Ltd. (n.d.). Annual Reports archive. Received from http://www.annualreports.com/Company/national-australia-bank-ltd-1

WestPac Corporation. (n.d.) Annual Reports archive. Received from https://www.westpac.com.au/about-westpac/investor-centre/financial-information/annual-reports-archive/

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