Profit margins chip away at public perception
(27 September 2012 – Australia) A Reserve Bank of Australia (RBA) senior official has commented on banks trying to hit "unrealistic" profit targets through "indiscriminate" cost-cutting and called for a debate.
The official said public perception that earnings were too high could erode trust in the sector. Australia’s big four bank profits topped A$11 billion in the latest half, and the central bank said weaker credit growth and higher funding costs are likely to drag on future earnings, which could entice banks to lower their lending standards.
There was no evidence of banks becoming less prudent but the Reserve warned the industry against excessive risk-taking to gain market share and boost earnings.
The RBA’s Financial Stability Report noted: ''The challenge for the industry in this environment will be to avoid taking on unnecessary risk or cutting costs indiscriminately in a bid to sustain unrealistic profit expectations, as this could ultimately sow the seeds of future problems.''
There was no evidence of banks becoming less prudent but the Reserve warned the industry against excessive risk-taking to gain market share and boost earnings.
The RBA’s Financial Stability Report noted: ''The challenge for the industry in this environment will be to avoid taking on unnecessary risk or cutting costs indiscriminately in a bid to sustain unrealistic profit expectations, as this could ultimately sow the seeds of future problems.''
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