From the FT's Lex blog
Australia's banks are fighting back. Public anger towards the country's big lenders is nearly as severe as in regions that had to bail out their banks and suffered a recession. Yet ANZ Bank and Westpac are not cowering: both have broke with tradition, lifting key lending rates because of their own cost of funding (rising), rather than tracking the direction of the central bank's rates (on hold and heading lower). This week, their rivals will probably follow suit.
Wayne Swan, Australia's treasurer, is accusing them of prioritizing shareholders over customers, but both should applaud their honesty.
Australia's success in avoiding a financial crisis does not mean that Europe's mess has no effect: its banks' funding costs are painfully high. Unsecured funding for five years costs Australia's banks on average 2.3 percentage points over short-term market borrowing rates, according to Westpac. Last June, those loans cost 1.5 points. ANZ has just added 6 basis points to its variable rate loans, Westpac raised its rate by 10bp. Net interest margins also do not leave the banks much wiggle room. Last week, National Australia Bank reported that its margin slipped to 2.19 per cent in the last quarter from 2.28 in the six months to the end of September. ANZ, Commonwealth Bank of Australia and Westpac all produce trading updates this week: their last reported margins were 2.46 per cent, 2.19 per cent and 2.22 per cent.
Aussie banks are profitable and strong; these four are among only 20 in the world to still be rated at least AA, according to the Reserve Bank of Australia. Their shares trade at an average 1.5 times book value - double the level of Europe's limping banks. This independence puts the Australians in the best place to weather any public storm. Populist pressure to raise lending at dangerously narrow margins does nothing for the strength of the banking sector and raises the risk it poses to the economy. At least one group is prepared to point this out.