Bank Revenues and Profits
Fast facts
- The majority of Canadians are shareholders in Canada’s banks
- 81 per cent of Canadians believe that Canada’s banks are more stable and secure compared to other banks around the world
- 78 per cent of Canadians have favourable views of Canadian banks
- Only 5 per cent of bank revenue is earned from personal banking service charges
The bottom line
When banks are profitable, they are stable. When banks succeed, the economy and communities prosper.
A profitable banking industry works for Canada and Canadians. Banks provide jobs directly and indirectly, create tax revenues and donate to charities in Canada and worldwide. Profits also expand the capital base of banks, which in turn maintains the stability of the system, ensuring the safety and security of Canadians’ deposits.
What is the difference between revenues and profits?
Revenues are the income generated from a business’ products and services before taxes and general expenses. Net income is left after all expenses and taxes are paid. The six largest banks’ net income in 2009 was $14.3 billion.
Where do bank revenues come from?
Being involved in a variety of businesses, banks have diverse revenue streams. This variety helps yield positive financial results, which makes for a secure and stable banking sector that contributes significantly to Canada’s economy.
Banks categorize their revenue into two broad areas based on how it is generated – interest income and non-interest or other income. As much as 51 per cent of bank revenues are earned mainly through lending activities.
Interest-based revenue is generated from what is known as the ‘spread’. The spread is simply the difference between the interest a bank earns on loans extended to customers and the interest paid to depositors for the use of their money. Banks extend loans to individuals to facilitate the purchase of homes, cars or vacations or to pay for an education. Loans to businesses facilitate purchases of new equipment or premises and allow for expansion into new markets. Interest income is also earned from securities the banks own, such as treasury bills or bonds.
Non-interest income accounts for 44 per cent of bank revenues. Banks earn this by providing a variety of value-added services, including trading of securities, assisting companies to issue new equity financing, commissions on securities and wealth management. Personal service fees for bank accounts make up only five per cent of total revenues. The fee for a particular service is based on the cost of providing it, staff time, technology and safety measures for any risks involved and the value-added benefit the customer receives.
Net income (after taxes and expenses) is paid to shareholders and also put to use within the banks to do many things, including:
- Upgrading technology
- Training employees
- Expanding and improving products and services
- Expanding the capital base of the institutions so the stability of the system is maintained
Who benefits from bank profitability?
Canadians do. The banking industry is a success story and its profitability is very important both to our economy and to individual Canadians.
- Most Canadians are shareholders in Canadian banks either directly through share ownership or through pension funds and mutual funds. Pension funds and RRSPs are the main beneficiaries of the billions of dollars that the banks pay in dividends each year.
- Banks also employ close to 260,000 employees in Canada. Thus, the banks and their subsidiaries contribute significantly to job creation and to the Canadian labour market.
- Canada’s six largest banks paid $7.5 billion in taxes in Canada in 2009 to all levels of government.
Other beneficiaries of a successful Canadian banking industry include:
- Suppliers to the banks, including businesses of all sizes, all over Canada and the world. Banks made purchases from outside suppliers totaling $13.8 billion in 2009.
- Canada’s charities and non-profit community groups received $156 million from banks and their employees in 2009. These contributions help support a broad range of programs, particularly in the areas of education, the arts, youth, the environment, disaster relief and health care.
Canadians value a strong banking sector
Canadians value a strong and profitable banking sector. Canadians are justifiably proud of their banks for their continued strength and stability. Recent polling1 found that:
- More than three-quarters of Canadians have favourable views of Canadian banks – a number that has grown during the global financial crisis as reports of failures and bailouts dominated the news headlines.
- Most of those in the survey said they view banks positively because they get good personal service and they believe their bank is there to meet customers’ needs.
- 88 per cent of those polled agree that it is important for Canada to have a strong banking sector that can compete internationally – a sector that can support other Canadian businesses that want to do business around the world and create jobs and a stronger economy.
The bottom line: when banks are profitable, they are stable. Canadians value knowing their banks are trustworthy and reliable. When banks succeed, the economy and communities prosper.
General inquiries:
1-800-263-0231 or inform@cba.ca
Media inquiries:
Rachel Swiednicki, Manager, Media Relations
(416) 362-6093, ext. 220 rswiednicki@cba.ca
