The big banks say they are still in the dark about the $1.5 billion a year new tax but are worried about the impact on liquidity.
Ian Narev, the CEO of Australia’s largest bank, the Commonwealth, says the levy could impact the resilience to a financial crisis.
“We don’t even fully understand the structure at the moment,” he told Radio National today, after bank executives met with Treasury officials yesterday.
“Based on what we understand to date, there may actually be a disincentive to build up liquidity buffers which is a very important part of withstanding a funding crisis.
“If we’re not sure about that yet, that it really goes to the heart of banking strength, it doesn’t sound like sound policy (on the levy) to me.”
Narev, and the other bank CEOs, says there’s no way to absorb a tax of $1.5 billion a year. Either customers or shareholders will suffer, or both.
However, prime minister Malcolm Turnbull says people could move to smaller regional banks, such as Bendigo Bank or the Bank of Queensland, if the big banks put up fees.
“There are other banks that are not subject to the levy that will be able to compete with them,” he told the Seven Network today.
“So if people feel that you know, Westpac or the Commonwealth is charging them too much, they can take their business somewhere else.
“You shouldn’t run up the white flag and surrender to the banks. They are the most profitable banks in the world.”
Treasurer Scott Morrison, who announced the new levy for the Commonwealth, Westpac, NAB, ANZ and Macquarie, in Tuesday night’s budget, says the banks made a collective $30 billion profit last year.
“$1.5 billion out of $30 billion pool of profits?” he says. “This is not an unreasonable level, it’s not an inconsistent levy, it’s actually a well structured piece of policy.”
However, Narev at the Commonwealth says costs can only go two ways, to customers or to shareholders.
“Governments may be able to find a third place where costs can be absorbed but businesses can’t,” he says.
“Either prices go up or shareholders get less, there is nothing in the middle.”
Analysts say the levy could reduce average big bank profits by between 5% and 6%.
Narev acknowledges that banks aren’t popular at the moment but are working to improve that.
“This week banks aren’t popular in the opinion polls, a year’s time it will be different businesses and the government can grab their tax,” he says.
The bank levy, a six-basis point charge on the big banks’ liabilities, starts on July 1.
The government is introducing a range of measures on the banks following a series of scandals involving financial planners providing poor advice.
Plenty of planners have been deregistered but no senior executive has lost his job in the fall out.
All senior executives will now be registered with the financial regulator APRA. If in breach, they can be deregistered and disqualified from holding executive positions, and be stripped of their bonuses.
APRA will be given stronger powers to remove and to disqualify senior executives and directors.
The government will mandate that a minimum of 40% of an executive’s variable remuneration — and 60% for CEO’s — be deferred for a minimum period of four years.
The government is also establishing the Australian Financial Complaints Authority, a vehicle where people can resolve disputes and obtain binding outcomes from the banks and other financial institutions.
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