The big banks are worried the shadow banking industry will benefit from the new levy

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The big four banks worry that the shadow banking sector and foreign banks operating in Australia will be given a free kick by the federal government’s new $1.5 billion a year levy.

Both the ANZ and the Commonwealth say the levy favours overseas-owned multinational banks at the expense of Australia’s own.

Analysts say the levy, which starts July 1, will strip 5% to 6% from the profits of the big four — Commonwealth, Westpac, NAB and ANZ.

The banks say they are alarmed with the truncated time for consultation, as well as the fact there was no prior consultation and that the draft legislation will not be released for public comment.

They also say the levy will mean higher costs for consumer lending and lower returns to shareholders.

“Most overseas banks operating in Australia are substantially larger than the Australian major banks, yet they will not be subject to the same additional cost,” says Ian Narev, CEO at the Commonwealth, in a letter to Treasury.

The Australian banks argue that this will enable the non-Australian banks to compete more aggressively for deposits.

Narev gives, as examples, ING, HSBC and Rabobank which are significant deposit-takers in Australia.

The overseas banks operating in Australia take 9% by value of all deposits in Australia, or about $161 billion, according to statistics from the regulator APRA.

The regional Australian banks, such as Suncorp, Bank of Queensland, and Bendigo, have about $114 billion in deposits.

“The levy must be designed to also apply to the non-Australian banks on a fair basis – a basis which levels the playing field between all banks operating in the Australian market, whether major banks, non-major banks, or non-Australian banks,” says Narev.

“While the non-Australian banks may be subject to levies, taxes and regulations in their own jurisdictions, when they come to Australia they must be prepared to compete on a level playing field.

“When the Australian banks go to an overseas jurisdiction, we expect to compete on a playing field which is level, no more and no less.”

ANZ’s Shayne Ellott, in his letter to Treasury, also says the levy will mean reduced international competitiveness.

“While ANZ understands the government’s objectives regarding domestic competitiveness, the current proposal gives large foreign banks a significant competitive advantage over major Australian banks in domestic and offshore markets,” Elliott writes.

“ANZ recommends the new major bank tax should be applied to the domestic liabilities of all banks operating in Australia with global liabilities above $100 million.”

The unregulated shadow banking sector — hedge funds, private equity funds, mutual funds and finance companies providing lending — could also gain an advantage under the new levy.

Narev says design of the levy must also take into consideration the opportunity this will offer the shadow banking industry.

“A number of companies already successfully operate on lower cost structures and with tax advantages due to offshore structures and transfer pricing,” he says.

“These companies are not fully regulated and a failure of these companies will impact on millions of Australian users.”

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