Bankers today contested media reports that Australian lenders have increased their margins.

"The Sydney Morning Herald" and "The Age" today reported that: "The big four banks have fattened their margins while complaining about being squeezed, new figures reveal."

The Australian Bankers' Association (ABA) said "This false conclusion is based on manipulation of newly released APRA data by the Australia Institute (AI)."

The APRA data show clearly the claim of margin increases is wrong, ABA said.

"The net income margin fell from 2.0 per cent in 2009 to 1.9 per cent in 2010. The margin decline is also revealed when comparing June quarter 2009 and June quarter 2010. Again, the recorded decline is from 2.0 per cent to 1.9 per cent."

ABA argued the reason margins have declined is because banks have not been passing on the full effects of rising funding costs.

That margins for most banks are falling, has also been confirmed in the Reserve Bank Board's Monetary Policy Meeting Minutes, released yesterday, it said.

Australia Institute miscalculation

If the AI's claims were correct, margins would have increased. Both APRA and the RBA have confirmed margins are falling.

ABA chief executive Steven Münchenberg said: "The AI's manipulation of APRA data involves a simple but fundamental mathematical error. It has effectively assumed that the difference in the average cash rate in June quarter 2010 and the average cash rate in June quarter 2009 applies for the full year."

"In effect, by comparing only two data points, the AI has assumed that all rises in the cash rate made over the twelve month period apply to the whole twelve months, giving the figure of 136 basis points. When properly averaged, rather than just added up, the AI's own methodology gives an answer of 68 basis points. This is a fundamental flaw in the AI claims."