Lending profits return to pre GFC levels
(18 December 2009 – Australia) The Reserve Bank of Australia has said that banks would be unjustified in making any further interest rake hikes, outside of official policy moves, as profits from lending return to pre-crisis levels.
Ric Battellino, Deputy Governor, RBA, said that if banks had not passed on the extra borrowing costs to customers in the past two years, the nation's lenders would have incurred losses.
However, the difference between the average interest rates charged to borrowers and average funding costs is now 20 basis points above pre-crisis levels, Mr Battellino highlighted.
Mr Battellino said that banks’ rate increases on top of moves in official rates had restored their profit margins to good health, so wider margins would now be tough to justify.
At the Australian Finance and Banking Conference in Sydney, Mr Battellino said that with the economy and business climate now improving, the economic justification for wider margins on loans is becoming less compelling. Mr Battellino added that it would be reasonable to assume that, in a competitive banking sector, margins should level out soon.
After the last official 25 basis point increase of the official cash rate, three out of four of Australia’s major banks raised their interest rates above the RBA’s movements, claiming that increased funding costs were to blame.
Westpac, who made the highest hike of 20 basis points more than the RBA’s 0.25 percent increase, defended their actions saying that the interest rate changes announced reflect the continuing cost pressures the bank is experiencing in the wholesale funding market.
Mr Battellino commented, saying that there has been a lot of controversy about the Westpac move, but the situation facing Westpac is that it increased its loans at virtually double the rate of the other banks and it's pretty clear to a bank that that is not sustainable.
However, the difference between the average interest rates charged to borrowers and average funding costs is now 20 basis points above pre-crisis levels, Mr Battellino highlighted.
Mr Battellino said that banks’ rate increases on top of moves in official rates had restored their profit margins to good health, so wider margins would now be tough to justify.
At the Australian Finance and Banking Conference in Sydney, Mr Battellino said that with the economy and business climate now improving, the economic justification for wider margins on loans is becoming less compelling. Mr Battellino added that it would be reasonable to assume that, in a competitive banking sector, margins should level out soon.
After the last official 25 basis point increase of the official cash rate, three out of four of Australia’s major banks raised their interest rates above the RBA’s movements, claiming that increased funding costs were to blame.
Westpac, who made the highest hike of 20 basis points more than the RBA’s 0.25 percent increase, defended their actions saying that the interest rate changes announced reflect the continuing cost pressures the bank is experiencing in the wholesale funding market.
Mr Battellino commented, saying that there has been a lot of controversy about the Westpac move, but the situation facing Westpac is that it increased its loans at virtually double the rate of the other banks and it's pretty clear to a bank that that is not sustainable.
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