By Gareth Vaughan
The finance chief of BNZ's parent, National Australia Bank (NAB), says the safer banks become the higher the interest rates customers' pay to borrow money from them should be.
Speaking on an analysts' conference call after NAB issued its third quarter trading statement yesterday, executive director for finance Mark Joiner was quizzed about competition among banks for customer deposits as tougher global capital adequacy standards are gradually implemented for banks, through the so-called Basel III reforms.
Asked whether flat was now NAB's aspiration for customer margins, Joiner said the NAB hierarchy managed to a return on equity rather than a margin. Margins were an interim indicator whereas a return on equity (NAB's rose 200 basis points to 15.2% last year) could indicate a healthy business and a healthy banking sector.
"As part of that the more efficient we get on the cost side, the more we can share some of that with customers. So the margin is really an outcome rather than something we manage directly to," Joiner (pictured below) said.
"But the safer we make the banking system, the more expensive credit needs to be so we should unashamedly incorporate those costs into product prices."
NAB reported June quarter unaudited cash earnings were unchanged at A$1.4 billion with revenue down 1%.The bank made no mention of net interest margins. Joiner said NAB was ceasing to report net interest margins on a quarterly basis because they could be a "misleading indicator." However, he said NAB's customer margin was "relatively flat" compared with the bank's March half-year results.
Meanwhile, NAB said quarterly lending volumes rose about 1.5%. Joiner said the bank had fully funded lending growth with customer deposits since September 2011 and aimed to continue this trend. In the June quarter alone NAB had about A$8 billion in surplus deposits.
"Not withstanding a challenging funding environment, we've completed our term funding requirements for FY12 (the bank's financial year to September 30) and started pre-funding FY13 (its next financial year)," said Joiner.
In its September 2012 year to date NAB has raised A$27 billion of term wholesale funding, including about A$9 billion of secured funding such as covered bonds and residential mortgage backed securities. The weighted average term to maturity of the money raised was 4.9 years.
Joiner predicted strong competition among banks for deposits, especially retail deposits, for at least five years. This period covers the lead up to the introduction of the Basel III Net Stable Funding Ratio (NSFR) in 2018. Similar to the core funding ratio implemented by the Reserve Bank of New Zealand in 2010, this ratio aims to calculate the proportion of long-term assets that are funded by long term, stable funding such as customer deposits, long-term wholesale funding and equity. The NSFR is defined as the amount of available stable funding to the amount of required stable funding. It must be greater than 100% over a one year horizon.
'I think competition, particularly on the retail (deposit) side, is here for the next five years while everyone gets positioned for it (NSFR). I don't see it letting up."
However, he added this didn't mean deposit rates would rise to "ever and ever" higher interest rates.
Joiner said NAB's NSFR was unchanged at June 30 at 85%, compared with a ratio in the "high 50s" around 10 years ago.
For the year to September 30, 2011 NAB posted record annual cash earnings of A$5.46 billion, up 19.2% year-on-year, and paid out total dividends of A$1.72 per share.
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17 Comments
hogswash.....the safer so the more expensive sounds more like a pr spin for customers to blame the pollies than anything else.
Also whay should I pay more to borrow from you because your safer? get less interest on a deposit from you because your "safer" I can understand. Not that you can ever prove a lieing so and so like you is safer anyway......
regards
I dont see a bias I see it as PR spin...as a depositor, I'd agree if it can be proven, which frankly I doubt. As a borrower on the other hand borrowing off a safer bank should cost more? Also all banks will have to meet the same rules. I am assuming he's trying to justify why you would want to borrow off his bank and be happy pay more to do that.....thats how it comes across.
NB I dont find physics counter-intuitive....those with bias to what they know it should be, OK, have problems with science and that should be obvious just from the copious posts in here.
Well heeled investors dont want competitive rates? not sure what you are saying here....
Now I can accept that the new rules will make it a bit tougher for banks and squeeze margins, hence the wish to raise their charges....but thats across the board.....
The only reason I can see we have so much debt is the charges are tax deductable or incompetance. The simple answer is the banks are too big to survive on the incomes they are getting or will get in the future, hence they will have to become smaller.
In terms of fixing a rate my debt is so low that moving to a fixed rate or not makes a handful of dollars....Im useless to a bank really.....they get little off me. Anyway I see a depression coming rates rising, yes while we go haywire for some months, after that the OCR is going to 0.25%...
regards
Using the same argument banks should pay huge licensing fees for the privilege of their closed shop market.
IF banks were an open market THEN banks can attempt to charge more for their features like security. Just like any other competitive market place.
Until then - tell him he's dreaming.
Banks should pay huge licensing fees
Too logical. Too obvious. Too simple.
Did you know
CBA is now the 9th largest bank in the world
Did you know
Aussie Banks Worth More Than Europe's
The market capitalisation of Australian financial stocks now exceed Europe's. After a major dive in market caps during the global financial crisis, Australian financials continued to rise as the euro zone has been gripped by the debt crisis over the past year.
See second item down http://www.alankohler.com.au/
They are only large because bank asset values have skyrocketed as have the value of the deposits pretending to fund them.
Too much money in the hands of very ordinary and probably undeserving people - But just as the value of the European banks have collapsed so will their Australian counterparts- the very rich are in the process of reclaiming the real assets undelying the mortgages at cents in the dollar. The previously grasping, poor majority are about to be put back in their place for the reasons PDK outlines - it's unsustainable.
Yes, I do not know if you should ever wish to be a top 10 bank- something bad always seems to happen to banks in the top 10. Either they go zombie, or die, or get bailed out or something bad, anyway they do not stay there very long and they seems to move in and out in country groupings as specific places take turns letting the finanace industry get way out of hand. Looks like it is the turn of our small part of the world. ( If you go out to the top 20- aren't all the big Oz banks in there?)
I agree if the bank is safer ( a very relative term, probably true as they now have savers deposits securing their loans. Thanks Bill English) it should cost it less to fund its loans, that was the arguement behind Covered Bonds! Why these guys are not picked up on the BS by those anaylists who attend these briefings is probably one of the reasons the 2008 collapse occured under the noses of the people you are so called experts.
See here. http://j.mp/L32BnJ
So this chap is complaining that it is costing the bank something extra to provide acceptable security for depositors. Does that mean that in the past our deposits were not very secure. What does that say about their managment and credibility. It is hard to see any justification for their desire for increased margins based on their profits which seem to rise steadily at a rate greater than inflation regardless of the GFC or anything. What this cabal of 4 banks need is some decent competition from people who can run their banks compeditively and securely, which is something he is admitting he is having trouble with.
We should all be banking with kiwi owned banks because the profit that goes offshore each year to the 4 Aussy banks would go a long way toward wiping out our annual defficit.
There are good options
Kiwi bank
TSB
SBS
Credit unions
PSIS
...?
This is like the biggest bullshit ever to come out of a Bankers mouth.
Customers are already paying more for their loans than realised....their taxes when the banks need bailing out by the Goverment !!! If Banks are not seen to be "safe", goverment won't need to bail them out !! His logic is both stupid and ....just that...STUPID.
I suggest Bankers should pay a higher price for their greed (for profits and bonuses) ....they go to jail when found incompetent...like laundering money or other illegal activities. (instead of paying fines to goverments to avoid jail time !!!)
Which means we should be getting lower loan rates because of the higher margins they need to collect to pay for their fines on their illegal activities !!
1. I am not saying saying Banks should charge less...infact they should charge whatever their customers are willing to pay...otherwise go to another Bank....BUT to say that "safer Banking" means "higher charges" is BULLSHIT.
2. To say that employees should be held personally responsible for their foolish action is correct, BUT what is these "foolish action" is infact a corporate determined objectives ?? ie "we do this and hope to get away with is as long as it increases our corporate profits" and "anyway we can just pay a fine and keep the rest or we are too big to fail anyway".
Can anybody even now believe that any large Banks will be allowed to fail ??
Such actions surely increases the Banks profit (which is attributable to employees and shareholders only) but also increases the risk that the Bank may fail and require the Goverment to save it .....Should I continue ???
I like the ideas of Joseph Huber and James Robertson for the UK think tank New Economics Foundation as part of their Public Credit concept.
Banks would be allowed to lend money but at 100% reserve of clearly designated interest earning savings/investment accounts (which would not be government guaranteed), as opposed to non interest earning current accounts (which would be government guaranteed and not part of a bank’s balance sheet). The payment system would be separated from the banks other services. If a bank failed, its customer’s current accounts and the payments system would be isolated from the liquidation of its other assets and remove the Armageddon threat bank executives use to get bailouts.
If you want interest you take your chances like any other investment. If you want 100% gaurantee you get the equivalent of a Reserve Bank digital safety deposit box. If a bank fails it can't bring down the whole system and no bank is too big to fail. Interest rates offered on clearly differentiated products would have to match their relative risk (ie mortgage backed securities as opposed to business loans) rather than the banks offering one rate to depositers then deciding how much to charge different customers.
How about this for a financial system? Government tells banks that it will not bail them out under any circumstances. People pull their money out of any bank which is perceived as unsafe. There will be bank runs during recessions and some will fail. Banks get the message and don't indulge in overtly risky behaviour.
Yeah, I don't think it will happen either. But in an ideal Austrian school world, that is how the system would work. Alternatively, force TBTF banks to break into smaller entities?
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