Let's Hear It for the Banks!

October long weekend is always a public holiday looking for an explanation, so let's use it as our annual Bank Appreciation weekend. This week, in honour of their achievements, let's pay them more, because almost doubling profits in an economic downturn clearly isn't enough for some of them.
Yes, Aussie banks need our support. So, as part of our national coming together each Bank Appreciation weekend let's not whinge when the banks put up interest rates further than the RBA (again), let's embrace it. Give generously, without a fight because, as you know, if you fight you'll lose anyway.

Here are five ways you can help the great Aussie banks this week, to celebrate this exciting new public holiday.

Support higher rates
Admittedly the Australian Bankers Association might need to learn a lesson or two about public relations. They put out a release last week stating that the Reserve Bank's official cash rate was "one consideration in determining the cost of money lent by banks to home owners and businesses". In other words, interest rates will go up, whatever. The press and Wayne Swan castigated the sector for firing this warning shot. Not us. If you don't like it, switch to another bank. Actually, can I rephrase that? Switch to the other bank.

Don't mention competition
Yes, if you're with Westpac you can always go to the Commonwealth Bank. Or vice versa. Plenty of choice. Between them they make up 80 percent of the mortgage market. Admittedly there were a number of non-bank lenders before the global financial crisis, but good riddance. They were clearly cutting into the profitability of these two major players.

Celebrate the profiteering
Westpac has almost doubled its profit during the economic downturn. With banks overseas being been bailed out by governments, that's quite a result. The net profit after tax (NPAT) was $1.6 billion in the first half of FY2009, up to $2.9 billion in the first half of FY2010. Hopefully they'll do even better with their second half results out soon. The Commonwealth Bank has done almost as well, up from $2.01 billion in the first half of FY2009 to $3.2 billion in the second half of FY2010 --- a 60 percent lift. Fortunately these are the two banks dominating the home loans market, so they can perpetuate their success by pushing interest rates higher. Thank goodness for that.

Talk up the share prices
As you might expect, with such an excellent performance, just by charging high interest rates and crying poverty every so often, Westpac and the Commonwealth Bank have outperformed the share market. The other two big banks, less reliant on mortgages, have fared less well. But there's a big worry that their share prices are starting to fall faster than the All Ordinaries all of a sudden. It's almost as though some people are questioning the quality and sustainability of these banks' new-found treasures. Could this be because of negative talk (from people who are yet to embrace Bank Appreciation weekend) that a drop in loan applications and a increase in defaults could stymie profit growth for the next year? I say "shareholders ignore such talk". We know how the banks can react --- they simply put up the interest rates for those who are left.