APRA chair warns banks to slow down
(20 February 2012 – Australia) The Australian Prudential Regulation Authority (APRA) warned the country’s banks against trying to meet unrealistic profit expectations by aggressive cost-cutting or chasing riskier lending.
APRA chairman John Laker won widespread plaudits for keeping the banks away from risky lending in the noughties boom, he said the banks were unlikely to match the profit growth of those years in the post-GFC climate.
APRA figures updated by the Australia Institute show the big four banks have increased their post-tax profits from A$16.6 billion in 2006-07 to A$24 billion in 2010-11, despite the plunge in new lending.
Laker told the Senate economics committee that banks must not try to retain profit growth by cost-cutting that weakens their ability to manage risks.
''The challenge is coming to terms with life in the slow lane,'' Laker said. ''If the current cautious approach of households and businesses towards taking on additional debt persists, [banks] are very likely to be denied the strong balance sheet growth that supported sustained profit increases before the crisis.
''In these circumstances, boards and management may be tempted to chase unrealistic expectations for returns on equity by assuming more risk - through lowering credit standards or seeking new and unfamiliar markets where they may have little comparative advantage - or by aggressive cost-cutting that may weaken risk management capacities.
''These temptations must be resisted in favour of more measured strategic ambitions.''
APRA figures updated by the Australia Institute show the big four banks have increased their post-tax profits from A$16.6 billion in 2006-07 to A$24 billion in 2010-11, despite the plunge in new lending.
Laker told the Senate economics committee that banks must not try to retain profit growth by cost-cutting that weakens their ability to manage risks.
''The challenge is coming to terms with life in the slow lane,'' Laker said. ''If the current cautious approach of households and businesses towards taking on additional debt persists, [banks] are very likely to be denied the strong balance sheet growth that supported sustained profit increases before the crisis.
''In these circumstances, boards and management may be tempted to chase unrealistic expectations for returns on equity by assuming more risk - through lowering credit standards or seeking new and unfamiliar markets where they may have little comparative advantage - or by aggressive cost-cutting that may weaken risk management capacities.
''These temptations must be resisted in favour of more measured strategic ambitions.''
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