October 15, 2019 12: 25: 39
The head of Westpac has warned that its AA credit rating could be threatened, leading to borrowers paying more for their home loans if the Morrison Government continues to criticise and probe the banking sector.
- Banks say it is difficult to pass on full rate cuts to borrowers as the RBA slashes rates closer to zero
- The major banks say they need to balance the competing interests of borrowers, depositors and shaerholders
- Westpac’s CEO denies that his bank is profiteering at the expense of customers
It comes after the Government ordered the Australian Competition and Consumer Commission (ACCC) to investigate how the major banks are pricing their residential mortgages and what barriers stand in the way of customers switching banks.
It would be the first major banking inquiry since the financial services royal commission published its scathing final report into the sector, earlier this year.
The bank’s chief executive Brian Hartzer also denied that Westpac was putting profits ahead of customers by refusing to pass on the Reserve Bank’s full interest rate cuts.
“We don’t accept that characterisation,” he told RN Breakfast’s Geraldine Doogue.
“The suggestion that the priority has been all about shareholders is just not right.”
Since June, the Reserve Bank has aggressively slashed the official cash rate by 75 basis points — down to a record low 0.75 per cent.
Many analysts are expecting the RBA to cut rates further and implement quantitative easing — or money printing — by early next year to stimulate the flagging Australian economy.
Balancing competing interests
As the RBA’s benchmark rate falls closer to zero, Mr Hartzer said it would become increasingly difficult to pass on further rate cuts in full, particularly as Australian banks have “thin profit margins”.
“The thing that is different about banks is that we’re continuously balancing the demand from borrowers with the availability of funding from our depositors and our wholesale borrowers,” he said.
“To just look at the margin on loans is to miss the fact that there’s also a cost associated with the funding.
“That’s been a big shift since the global financial crisis where it became clear that banks that didn’t have a strong deposit base were more vulnerable to wholesale markets shutting down.”
“So we’ve shifted the mix, and reliance on deposits quite dramatically in the last 10 years,” he said, explaining that two-thirds of Westpac’s funds for lending are sourced from its customer deposits.
When asked what the ACCC inquiry was likely to find, Mr Hartzer said there was unlikely to be any “big revelation”.
“There have been 57 inquiries into banking and many of them have covered mortgages,” he said.
“What it will reveal though is that … we make a complicated set of choices in balancing the needs of our borrowers, depositors and the reasonable return expectations of our shareholders.”
October 15, 2019 12: 20: 11