Returns over 20% no longer appropriate for banks
(30 November 2012 – Australia) Aiming for returns on shareholder funds of 20 percent or higher has not been sensible since the global financial crisis according to Westpac chief executive Gail Kelly, who believes the days of Australian banks posting these returns are over.
''Those days of the 23 to 22 percent … I think those days are gone,'' Kelly said.
She told a business forum in Sydney that Westpac's target to maintain a return on equity rate of 15 percent was still appropriate, as long as good risk-management strategies were implemented.
''I think there are opportunities for growth and it is important that in a sensible managed way we go after those opportunities for growth,'' Kelly said.
At the same event, Bendigo and Adelaide Bank managing director Mike Hirst said banks hold a privileged position within the economy and it was inappropriate for them to chase risky levels of return.
''The reality is if we're asking for 20 percent returns from our banks, when the risk rate is 6 or 7 per cent, that is a fairly large risk and I'm not sure there should be that risk,'' he told the forum.
Australian Prudential Regulation Authority (APRA) chairman John Laker said he had no problem with banks making returns in the mid-teens but agreed that anything higher than 20 percent was no longer appropriate.
''I think the message is getting through,'' he said. ''Part of it is educating investors that the good days are behind us.''
She told a business forum in Sydney that Westpac's target to maintain a return on equity rate of 15 percent was still appropriate, as long as good risk-management strategies were implemented.
''I think there are opportunities for growth and it is important that in a sensible managed way we go after those opportunities for growth,'' Kelly said.
At the same event, Bendigo and Adelaide Bank managing director Mike Hirst said banks hold a privileged position within the economy and it was inappropriate for them to chase risky levels of return.
''The reality is if we're asking for 20 percent returns from our banks, when the risk rate is 6 or 7 per cent, that is a fairly large risk and I'm not sure there should be that risk,'' he told the forum.
Australian Prudential Regulation Authority (APRA) chairman John Laker said he had no problem with banks making returns in the mid-teens but agreed that anything higher than 20 percent was no longer appropriate.
''I think the message is getting through,'' he said. ''Part of it is educating investors that the good days are behind us.''
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