Tuesday, March 16, 2010

A good crisis for Australia's banks? What do you think?

Its been a good crisis for Australia's banks, according to the head of Australia's Treasury. They managed to both fatten margins and dramatically boost market share.

Dr Ken Henry told a Canberra conference the major banks' net interest margins widened 0.20 to 0.25 points over the course of the financial crisis, partly reversing a decade of progress in which they had halved.

"Net interest margins represent the difference between the rate of interest banks and others charge and the rate of interest they pay on their deposits and other types of funding," he said. "Where competition is increasing, it can be expected net interest margins will fall."

But over the two years of the crisis the share of the mortgage market grabbed by the big five jumped from around 60 per cent to 82 per cent.

"This is partly a consequence of mergers... the takeover of BankWest by the Commonwealth and St George by Westpac. As well, some foreign banks withdrew or scaled back their operations in Australia, reflecting adverse conditions in their home markets."

Declaring any weakening in competitive pressures a "concern to policymakers as well as customers," Dr Henry said he wanted small lenders and foreign banks to return.

But he said it was unrealistic to expect a complete return to the easy credit Australians enjoyed before the crisis.

"With global risk expected to be priced more sustainably in future, these conditions are unlikely to return. Lenders with business models that rely on very low cost credit are likely to experience significant ongoing pressure," he said.

His remarks back those of Treasurer Wayne Swan who has warned the banks there is "absolutely no justification" for rate increases over and above those of the Reserve Bank.

Dr Henry said he would still describe Australia's financial markets as "contestable" meaning that even though it had become more concentrated, enough small players remained to make inroads into the banks' market share.

But other research released yesterday indicated they will find it heavy going.

Financial research firm CoreData said only 1 in 8 Australians believed money in credit unions and building societies to be "very secure".

By contrast half of those surveyed described money in the big banks was very secure.

This is despite the financial crisis having ended, and the government deposit guarantee applying to all deposit-taking institutions.

"One quarter of the people we surveyed didn't know about guarantee. It was meant to slow the flight of investors towards the big four banks, but clearly it has failed to resonate," said CoreData Principal Andrew Inwood.

Dr Henry said although big businesses had been able to continue to access funds throughout the crisis this had not been the caste for small businesses whose access to credit had fallen sharply.

Separately released Bureau of Statistics figures showed commercial finance down 16 per cent over the year to January at a time when lending for housing remained little changed.

Published in today's SMH and Age

Graphic: The Age



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5 comments:

badm0f0 said...

On a somewhat tangential note, Krugman has linked to an interesting NBER working paper that charts the relationship between (national) debt & banking crises in numerous countries over the past 150-200 hundred years: http://tinyurl.com/yg8zqxe
The paper is free to download for journos & academic types, $5 for the average punter: http://www.nber.org/papers/w15815

Peter Martin said...

Ta.

carbonsink said...

Business credit still in a hole, personal credit recovering, and naturally, housing credit never stopped growing.

That's the Australian economy for you: Resource income leveraged up and blown on housing.

I'm sure all those overseas borrowings used to bid up the price of existing housing stock has been very productive ... not.

SB said...

Let's see house prices drop by a similar amount to any of 20-30 rich countries I could name and then note how the banks go.

GLENN said...

If this situation were in a book it would be in the fiction section...nobody would believe it.

Here we go again. The corporations crow about another boom. The banks having obiterated their competitors are jabbing their claws into the public again. The Reserve Bank seeing the kick up in inflation use monitary policy to whack the have-nots instead of the haves in our two tier economy.

Around and around...

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