Australian investments in banks hit half a trillion dollars

A new report released by UBS claims that there was potential for a “concentration risk” in Australia, given the enormous amount of money Australians have invested in the big four banks.

Whilst the banks are coming off record-breaking annual profits and are still offering high dividend yields, the combined market capitalisation of the big four has been pushed to nearly $400 billion. Commonwealth Bank (ASX: CBA) maintains the largest market cap, at $124.4 billion, followed by Westpac’s (ASX: WBC) $101.5 billion, ANZ’s (ASX: ANZ) $87.4 billion and NAB’s (ASX: NAB) $79.4 billion.

However, when combined with other securities that are also linked to the banks, investments in the big four banks account for 21% of all household wealth within Australia, excluding housing and deposits. According to the report, that added up to half a trillion dollars. Furthermore, an additional $762 billion was also held as deposits at the big four.

The Australian Financial Review quoted UBS analysts Jon Mott and Chris Williams as saying, “While these statistics are an indication of the success of the banking sector over the last decade, it also highlights significant wealth concentration for many Australian households.”

Given the economy’s reliance on the success of the big four banks as well as Macquarie Group (ASX: MQG), the Australian Prudential Regulation Authority (APRA) is introducing new rules that will require the banks to hold more capital in reserve in case of a major economic downturn.

It has been suggested that the five banks could be required to hold an extra $14 billion (combined) in capital, which could put a dent on their ability to pay high dividends in the short- to medium-term.

Foolish takeaway

Although the banks’ profits have soared, it will become more and more difficult for their efforts to be repeated. This is because bad debts have remained low in recent times, but are expected to climb in the near future, which will negatively impact their earnings.

As such, shares in the banks remain unlikely to deliver market-beating returns in the long run and investors should be looking elsewhere for stock ideas.

A better stock for your portfolio

If you are looking for some stock ideas to add to your portfolio today, look no further than our #1 dividend-paying stock. Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.