While many are forecasting that the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) will struggle to generate much earnings growth in the years ahead, they have an ace up their sleeve.
It's called superannuation, and the big four dominate the top five largest super funds in Australia, along with AMP Limited (ASX: AMP). The insurance and wealth management giant has $95 billion in superannuation funds under management (FUM), followed by industry fund AustralianSuper with $91.3 billion.
BT Investment Management Ltd (ASX: BTT) – partnered with Westpac, had $81.6 billion in FUM, Colonial first State – owned by Commonwealth Bank had $70.1 billion while NAB had $78.6 billion through its MLC and Plum brands.
ANZ ranks tenth with its $33.8 billion in FUM.
With superannuation savings expected to balloon from $2 trillion currently to $9.5 trillion in the next 20 years, the banks are likely to grab an even larger share of the pie according to accounting firm Deloitte. Earnings from funds management could see that sector become an even more important growth engine for the big four.
Despite their higher fees and lower returns than industry funds on average, retail funds, such as those run by the big four are growing at a faster rate, according to a new report from the accounting firm. Deloitte predicts the retail sector will become the largest sector overall, with $3 trillion in assets by 2034. Self-managed super funds (SMSFs) is currently the largest sector, with 34% of super savings, but is expected to grow more slowly than retail and industry funds.
The biggest factor in the banks' favour is that thanks to compulsory superannuation savings, FUM will grow, virtually no matter what they do. With many Australians seemingly uncaring about their super, this plays into the hands of the banks – much like we seem to do with mortgages. We stick with the banks or our existing lender because switching to a lower cost non-big four bank seems like too much trouble, despite the potential to save thousands.
Foolish takeaway
While credit and earnings growth may slow due to higher capital requirements, it seems clear the banks have a massive lever to drive earnings higher in the form of managing Australians' superannuation over the next 20 years and beyond.
