RBA advises banks on profit expectations
(30 March 2012 – Australia) Local banks have been warned against taking more risk or excessive cost cutting to help maintain profits.
The Reserve Bank of Australia (RBA) said the banking system remains relatively strong in the midst of a slowing credit market, with lenders better placed to handle any strains in global funding markets.
However, in its latest assessment of the nation's financial system, the RBA warned against retail banks chasing unrealistic profits.
Two of the big banks - Westpac and ANZ - have outlined major job-cutting programs in response to the sharp slowdown in credit growth.
Westpac has said it would cut 550 jobs through restructuring and outsourcing while ANZ expects to cull 1000 permanent jobs by September.
''It would be unhelpful if banks were to chase unrealistic profit expectations by taking on more risk - through lowering credit standards or expanding too quickly into new or unfamiliar markets - or by pursuing cost cutting in a way that weakens their risk management capabilities,'' the central bank said in its financial stability review.
The Finance Sector Union national secretary, Leon Carter, said when banks cut into back office staff, too often the axe falls on people in critical risk management roles.
The central bank also noted there were signs that global bank funding markets had improved since December in line with a pick-up in global market sentiment. This was helping bigger banks to significantly step up their bond issuance, including covered bonds.
Although the cost for Australian banks of borrowing funds from global markets increased from the middle of last year, it noted this had been passed on to customers with some repricing of loans.
The RBA said the wholesale funding task of the sector was also more manageable, with deposit growth continuing to outpace growth in credit by a wide margin.
''The banking system remains in a relatively strong condition. The larger banks are in a better position than a few years ago to cope with the tighter funding conditions given the improvements they have made to their funding, liquidity and capital positions over recent years,'' it said.
However, in its latest assessment of the nation's financial system, the RBA warned against retail banks chasing unrealistic profits.
Two of the big banks - Westpac and ANZ - have outlined major job-cutting programs in response to the sharp slowdown in credit growth.
Westpac has said it would cut 550 jobs through restructuring and outsourcing while ANZ expects to cull 1000 permanent jobs by September.
''It would be unhelpful if banks were to chase unrealistic profit expectations by taking on more risk - through lowering credit standards or expanding too quickly into new or unfamiliar markets - or by pursuing cost cutting in a way that weakens their risk management capabilities,'' the central bank said in its financial stability review.
The Finance Sector Union national secretary, Leon Carter, said when banks cut into back office staff, too often the axe falls on people in critical risk management roles.
The central bank also noted there were signs that global bank funding markets had improved since December in line with a pick-up in global market sentiment. This was helping bigger banks to significantly step up their bond issuance, including covered bonds.
Although the cost for Australian banks of borrowing funds from global markets increased from the middle of last year, it noted this had been passed on to customers with some repricing of loans.
The RBA said the wholesale funding task of the sector was also more manageable, with deposit growth continuing to outpace growth in credit by a wide margin.
''The banking system remains in a relatively strong condition. The larger banks are in a better position than a few years ago to cope with the tighter funding conditions given the improvements they have made to their funding, liquidity and capital positions over recent years,'' it said.
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