Rising funding costs hit regional banks hard
(16 November 2011 – Australia) A new report from audit firm KPMG shows a squeeze on Australia’s regional banks due to an increased cost of credit.
The analysis of the country’s largest regional banks showed the sector’s pre-tax operating profits rose 16.1 percent to A$828 million for the financial year, from A$713 million the year before.
The four banks in the survey - Bank of Queensland (BoQ), Suncorp Bank, Bendigo and Adelaide Bank, and Members Equity Bank - will continue to face a disadvantage in the cost of credit they use for local lending compared to their big four peers.
With roughly thirty cents in every dollar lent by Australia's major banks raised from overseas investors, the smaller size of the regional banks means they can't source funds at the same attractive terms as the AA rated majors.
The inability for Australia's regionals to source funds at the same price as the majors undercuts the smaller banks advantage in retail deposits.
Regional banks received 63.7 percent of their funding from household deposits in 2011, more than the 59.8 per cent the big four received. Also, deposit growth grew 8.4 percent in the financial year for regionals, faster than the whole banking sector's increase of 8 per cent in the same time.
The common measure of a businesses' growth fell in 2010 to a 6.7 percent return for the sector, down from 7.2 percent in the 2010 financial year. The return on equity for Commonwealth Bank, for example, was 17.6 percent in 2011 from 16.9 percent the year before.
Of the four regionals, Bendigo and Adelaide Bank achieved the highest a ROE of 9 percent, followed by Bank of Queensland at 8 percent. Members Equity had a ROE of 6.4 percent, while Suncorp had 3.2 percent in the financial year.
The four banks in the survey - Bank of Queensland (BoQ), Suncorp Bank, Bendigo and Adelaide Bank, and Members Equity Bank - will continue to face a disadvantage in the cost of credit they use for local lending compared to their big four peers.
With roughly thirty cents in every dollar lent by Australia's major banks raised from overseas investors, the smaller size of the regional banks means they can't source funds at the same attractive terms as the AA rated majors.
The inability for Australia's regionals to source funds at the same price as the majors undercuts the smaller banks advantage in retail deposits.
Regional banks received 63.7 percent of their funding from household deposits in 2011, more than the 59.8 per cent the big four received. Also, deposit growth grew 8.4 percent in the financial year for regionals, faster than the whole banking sector's increase of 8 per cent in the same time.
The common measure of a businesses' growth fell in 2010 to a 6.7 percent return for the sector, down from 7.2 percent in the 2010 financial year. The return on equity for Commonwealth Bank, for example, was 17.6 percent in 2011 from 16.9 percent the year before.
Of the four regionals, Bendigo and Adelaide Bank achieved the highest a ROE of 9 percent, followed by Bank of Queensland at 8 percent. Members Equity had a ROE of 6.4 percent, while Suncorp had 3.2 percent in the financial year.
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