Aus­tralian banks post record prof­its in 2010, com­ing year may be dif­fi­cult

The Pak Banker - - Front Page -

SYD­NEY: Aus­tralian banks posted record prof­its in 2010 but earn­ings growth in the com­ing year may be dif­fi­cult as the big four pre­pare to com­pete for funds with heav­ily in­debted for­eign gov­ern­ments.

West­pac made Aus­tralian his­tory with a $6.3 bil­lion net profit that pushed the big four banks' com­bined prof­its to $21 bil­lion in 2010. This was due largely to fall­ing bad debts as the banks emerged from the eco­nomic slow­down prompted by the global fi­nan­cial cri­sis.

But an­a­lysts warn earn­ings may be de­pressed in 2011 as higher fund­ing costs pres­sure the mar­gins of the big four - Com­mon­wealth Bank of Aus­tralia, West­pac, ANZ Bank­ing Group and Na­tional Aus­tralia Bank. On top of the com­pe­ti­tion from for­eign gov­ern­ments in the com­ing years, the banks are hav­ing to re­fi­nance their debt at higher post-GFC rates and will pay a pre­mium for longer-term debt as they seek to lock in fund­ing.

"There's go­ing to be a lot of de­mand for longer du­ra­tion bank debt than what we've seen in the past," CLSA Asia Pa­cific an­a­lyst Brian John­son said. This is at a time when the lo­cal banks have a huge fund­ing re­quire­ment, with CBA and West­pac the fourth and fifth biggest bor­row­ers in global debt mar­kets, UBS an­a­lyst Jonathan Mott said.

The past decade saw banks lend more money to home buy­ers and busi­nesses in Aus­tralia with­out match­ing the lend­ing with sav­ings. The fund­ing gap was filled by a grow­ing re­liance on off­shore debt mar­kets.

When the GFC weak­ened re­gional banks and caused non­banks to fail, the role of sourc­ing for­eign cap­i­tal to fund the do­mes­tic econ­omy fell in­creas­ingly on the big four. In 2010 the big four passed on in­ter­est rate rises to pro­tect mar­gins af­ter fund­ing costs climbed af­ter the GFC.

Now a greater chal­lenge lies ahead: hav­ing to com­pete harder in off­shore credit mar­kets against global banks and heav­ily in­debted north­ern hemi­sphere gov­ern­ments ex­pected to is­sue debt ag­gres­sively from 2012.

"Banks could find their ac­cess to flows of whole­sale fund­ing di­min­ishes be­low crit­i­cal min­i­mum re­quire­ments (their an­nual re-fi­nanc­ing tasks) which can­not eas­ily be re­placed by other fund­ing sources," Messrs Martin and El­lis said.

"Ul­ti­mately that cost would be passed through to bor­row­ers," Fat Prophets' an­a­lyst Colin White­head said. So banks are un­der pres­sure to di­ver­sify their fund­ing sources. Len­ders spent much of 2010 com­pet­ing for more re­tail de­posits and lob­by­ing the fed­eral govern­ment to al­low the is­sue of cov­ered bonds.

South­ern Cross Eq­ui­ties an­a­lyst TS Lim said with in­ter­est in­come still com­pris­ing two-thirds of to­tal in­come, banks will keep diver­si­fy­ing into wealth man­age­ment and in­sti­tu­tional bank­ing prod­ucts and ser­vices. -PB News

IS­LAM­ABAD: Prime Min­is­ter Syed Yusuf Raza Gi­lani speak­ing in the Se­nate ses­sion on pass­ing the 19th amend­ment at the Par­lia­ment House. -App

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