Australia'south huge banks straggle deeper into regulatory quagmire

59
Source:   —  April 10, 2016, at 3:54 PM

Latest week, Westpac Banking Corp () became the second Australian lender after ANZ Banking Group () to be dragged to Ct by regulators over suspected rigging of benchmark interest rates.

Australian banks famously rode out the two thousand eight financial crisis with barely a scratch, but number longer are they the exemplar of success, as a product rout ravages the economy and a growing storm of accusations over misconduct threatens to tar their name.

Latest week, Westpac Banking Corp () became the second Australian lender after ANZ Banking Group () to be dragged to Ct by regulators over suspected rigging of benchmark interest rates. Both have denied any wrongdoing, saying they'd vigorously defend themselves.

While increased regulatory scrutiny will eventually promote greater compliance, banks could face medium-term financial penalties, denting earnings and shareholder returns in a sector battling stricter capital rules and higher loan losses.

The industry has already been unsettled by probes into wealth mismanagement and insurance scams, and public pressure is piling on Prime Minister Malcolm Turnbull to order a sector-wide inquiry into bank conduct as he campaigns for a federal election in July.

In a speech at Westpac'south one hundred ninety-ninth birthday lunch latest week, Turnbull accused banks of sometimes taking advantage of customers but stopped brief of seeking a high-level inquiry. In contrast, Australia'south main opposition Labour Party on Friday promised a Royal Commission into the financial sector if it wins July'south election.

"We're not denying there have been problems, we aren't denying there has to be ongoing scrutiny of the industry," Australian Bankers' Organization CEO Steven M├╝nchenberg said on Friday. "The question is do we necessity a Royal Commission to do that? No, we do not."

National Australia Bank's () CEO Andrew Thorburn said a Royal Commission would be a "serious distraction". ANZ Chief Executive Shayne Elliott said such an inquiry could damage Australia'south standing among global investors.

"The more immediate impact would be banks suffering some reputational damage," Fitch ratings said latest week in a note on Australia'south banks.

The Huge Four - NAB, Commonwealth Bank of Australia (), Westpac and ANZ - are among the worst performers on the benchmark S&P/ASX200 index this year, down between fourteen % and nineteen percent.

FINISH OF GOLDEN ERA

Until latest year, the banks had boasted a decade of uninterrupted growth and delighted investors with generous dividends. When the two thousand eight global crisis hit, the banks sailed through with small damage, backed by a resources boom at home.

But as the commodities super-cycle plumbs new lows, the focus is falling on bank loans to Australia'south beleaguered agricultural and mining sectors.

The sectors have shed jobs by the thousands, weighing on individual borrowers' skill to pay their mortgages in an already cooling housing market.

Charles Littrell, a senior executive at the Australian Prudential and Regulation Authority, told local media that the concentration of lending by the Huge Four in property is a "perpetual concern".

Latest year, APRA demanded the banks hold aside a bigger buffer against mortgages, forcing them to lift over A$20 billion ($15.1 billion).

The regulator is set to announce further measures to expand capital, eroding banks' bottom line.

Profit growth is set to ease to low single-digits this financial year, a distant cry from the doubling of profits over the past five years.

Net interest margins are expected to fall to record lows on stifling contest and higher cost of funds, while loan-loss provisions may hit their highest in five years by the following financial year, according to Thomson Reuters I/B/E/S estimates.

"Credit quality is by distant the biggest risk that faces the banks. It can affect earnings, dividends," said Andrew Martin, portfolio manager at Alphinity Investment Management, which holds stakes in the major banks.

"The second one is regulations, and the reason is, ultimately over time, the more regulation there is the more it'll pressure returns."

(Editing by Jane Wardell and Ryan Woo)

READ ALSO
Italy government calls meeting Monday to finalise bank fund plan: sources

Italy government calls meeting Monday to finalise bank fund plan: sources

Italy'south government is anxious to assuage concerns about its banking system, which fared badly in financial stress tests carried out by the European Central Bank and is groaning below the wt of three hundred sixty billion euros ($410 billion) in horrible...

63
Societe Generale headquarters searched in Panama probe

Societe Generale headquarters searched in Panama probe

The searches on April five were a "normal development in the context of such an investigation", a spokesman for the bank said, declining to comment further.

51
Kyle Busch, Toyota complete TX sweep with NASCAR Cup win

Kyle Busch, Toyota complete TX sweep with NASCAR Cup win

What’s more, Busch won his fourth straight NASCAR national series race, having swept latest week’s NASCAR Camping World Truck Series and NASCAR Sprint Cup events at Martinsville and having won Friday night’s NASCAR Xfinity Series race at Texas.

58
Can Israel construct big, sustainable companies?

Can Israel construct big, sustainable companies?

How to connect the network The Israeli start-up ecosystem is a well-oiled investment machine that's been turning out companies for the better portion of two decades.

53