(23 August 2010 – Australia) The chief executive officer of Australia and New Zealand Banking Group Mike Smith has said that the world’s banks need to change their business model to adapt to the “permanently’ higher cost of banking.Mr Smith made the comments last week as he announced the bank’s 37 percent increase in underlying profit of A$1.3 billion.
The strong earnings were driven by a slowing in bad debts.
However, Mr Smith has highlighted that higher wholesale funding costs are now a fixed feature of the banking landscape.
We have to face up to the fact that banks now have permanently higher costs of doing business, Mr Smith said.
These include continuing pressures on wholesale funding costs and at the same time rates for deposits have never been higher compared to short-term wholesale rates, the bank’s CEO said.
Mr Smith noted that banks have to carry significant costs associated with the new international capital and liquidity requirements.
The result is we simply to have think differently about our business, Mr Smith said.
We need to change, we need to streamline our structures and do things in new and different ways, Mr Smith said.
Mr Smith’s outlook on costs immediately sparked speculation Australian banks would move their key lending rates higher after the election.