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European Study Pours Cold Water on Australian Banks Cost Claims

Posted: February 22nd, 2012 | Author: | Filed under: Business and Economy | Tags: , , , , , , , , , | 1 Comment »

European Study Pours Cold Water on Australian Banks Cost ClaimsElysse Morgan from ABC reports that new research by one of Europe’s biggest banks suggests that Australian banks are hiking interest rates to protect profit margins, not to cover higher funding costs as they have insisted. But the Australian Bankers’ Association has dismissed the study and says lenders may have to raise their rates again.

The study by Societe Generale shows nearly all funding costs for Australian lenders have fallen in the last six months. Societe Generale’s head of strategy in Asia, Christian Carrillo, says the banks’ claims about rising costs are dubious.

“Research suggests that effectively pretty much every source of funding that they use in terms of domestic deposits, short-term funding onshore, long-term funding onshore, has actually gone down,” Mr Carrillo said. “There has been some widening in spreads between offshore funding rates and the rates that they use to hedge against, but if you take into account the overall rate they pay to fund overseas, even that has actually come down slightly.”

Study Pours Cold Water on Australian Banks Cost Claims

Mr Carrillo says publicly available data from the Reserve Bank and the Australian Prudential Regulation Authority shows the banks’ deposit rates have effectively fallen by more than the Reserve Bank’s cash rate since early 2011.

He says Australian banks’ reliance on domestic deposits is at an all-time high as cautious consumers opt to save rather than spend. “The significance is that, in principle, they could lend more,” Mr Carrillo said.”Right now, in aggregate, it appears to be about 66 per cent of their overall funding. That’s an all-time high, or at least as high as it has been over the last 15 years.”

But Australian Bankers’ Association chief executive Steven Munchenberg says the report is incorrect. “At the end of the day, I have to say given a choice between an analyst in Tokyo for Societe Generale and the Reserve Bank here in Australia, which analyses these things in detail, I think the Reserve Bank is a more credible determinant of what our funding costs are,” Mr Munchenberg said.

Mr Munchenberg says banks may consider additional rate rises. “Well the reality is if costs of money remain high, if it even gets higher, then the banks may well look to pass some of those higher costs on,” Mr Munchenberg said. “They may well look to absorb some of those costs; there’s a balance there that needs to be struck.”


One Comment on “European Study Pours Cold Water on Australian Banks Cost Claims”

  1. 1 indeep media » Blog Archive said at 1:09 pm on February 22nd, 2012:

    […] “Research suggests that effectively pretty much every source of funding that they use in terms of domestic deposits, short-term funding onshore, long-term funding onshore, has actually gone down,” Mr Carrillo said. ”There has been some widening in spreads between offshore funding rates and the rates that they use to hedge against, but if you take into account the overall rate they pay to fund overseas, even that has actually come down slightly.” Read the full article »»»» […]