One of the biggest shocks to the financial services community was a decision by government to raise $6.2 billion through a 6-basis point levy on the liabilities of Australia’s five biggest banks.
Morgan Stanley estimates that the levy will reduce the major banks’ earnings by around 4.5 per cent, but says ongoing re-pricing may mitigate the impact.
“Over the past two years, the banks have demonstrated their willingness to use oligopoly pricing power in retail banking to respond to regulatory changes and pass on higher funding costs,” Morgan Stanley said in a research note.
“In our view, they will try to offset the impact of the levy via lower rates on deposits or higher rates on mortgages. With this in mind, we estimate that the four major banks would need to raise home loan SVRs (standard variable rate) by 20 basis points to offset the earnings impact of the levy.”
However, Morgan Stanley did note that the government has also announced that the ACCC will undertake a residential mortgage repricing inquiry until 30 June 2018. This will require banks to explain any changes or proposed changes to mortgage pricing including fees, charges or interest rates.
The surprise bank levy, which was leaked to the media prior to the budget’s release, wreaked havoc on bank stocks on Tuesday. Commonwealth Bank fell 3.9 per cent on to $82.02, Westpac fell 3.5 per cent to $32.88, ANZ fell 2.6 per cent to $29.16 and NAB fell 2.1 per cent to $32.42. All in all, this totalled around $13.8 billion.
New ABA boss Anna Bligh slammed the tax, calling it a “direct attack on jobs and growth” that “could have unintended consequences”.
“This new tax is not a well thought-out policy response to a public interest issue, it is a political tax grab to cover a budget black hole,” Ms Bligh said.
“It is naïve and misguided and has already sent the wrong signals to global financial markets about the strength and stability of our banking sector.”
Prime Minister Malcolm Turnbull yesterday warned the banks that the ACCC would be watching them “very carefully”.
In an interview with Sky News, Mr Turnbull was asked to comment on speculation that the banks could lift mortgage rates by up to 15 basis points to offset the levy.
“That would be really excessive,” he said. “Let’s see how they react. They don’t need to pass this on. They are very profitable. The ACCC will be watching them very, very carefully indeed.
“It’s a competitive market and there are other banks that are not caught by the levy and there will be plenty of opportunities to go elsewhere if the banks choose to raise mortgage rates.”