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Bendigo and Adelaide Bank’s 2016 annual review, released last week, included a candid message from its managing director, Mike Hirst, who said he realises that “there is some community angst with regard to banks.”
“Much of this arises when banks don’t pass on changes in the official cash rate to mortgage holders,” he said.
“But this is not a one-sided argument. Banks simply intermediate between depositors and borrowers and earn a margin for doing so. The rates bank set must be attractive enough for depositors to provide the funds that are then lent to borrowers. Without those funds there can be no borrowing, so when setting rates banks have to consider lots of stakeholders. We try to do this as equitably as we can.”
“Hopefully”, Mr Hirst said, “Australians understand there is no direct link between changes in the cash rate and what happens to rates on loans and deposits.”
The regional bank boss’s comments echo those of ANZ chief executive Shayne Elliott, who defended the major bank’s decision not to pass on a 25 basis point rate cut as the group announced a $5.2 billion profit.
Last month Mr Elliott said the balance between reducing home loan rates and increasing deposits was a “complex formula that we need to solve”.
“We have depositors on one side and we have borrowers on the other; and it’s interesting to note, we have five times as many depositors as we do borrowers,” Mr Elliott said.
“We need to get that balance right because without those really valuable deposits, we don’t have any money to lend out. I mean, we are essentially an intermediary and so we need to get that balance right and we need to be really competitive with depositors to make sure they keep money in the bank and don’t take it out into other investments,” he said.
Similarly, Bendigo and Adelaide’s Mike Hirst noted that it is “a complex issue” but added that “even a simplistic understanding of why banks price as they do will go some way to easing that angst.”
“Yes, banks make profits, but a strong banking industry is fundamental to the strength of a country’s economy. Unprofitable banks in Greece and the UK have seen those economies struggle.”
Mr Hirst highlighted that in the recent past there have been 14 parliamentary inquiries into banks, the Murray inquiry into Australia’s Financial System, and three class actions against banks, which he says “were roundly unsuccessful [with] no finding of systemic wrong doing across the industry”.
“Even so, a whole host of new regulation has been implemented to further ensure banks operate with the best interests of consumers in mind.
“Given all that, it is very hard to see what substantive, tangible matters a royal commission would actually investigate. In my view, it would be a significant waste of taxpayer and shareholder money.”
Mr Hirst said the regional bank agrees that there are some issues within the industry that should be addressed, but believes the most effective solution is the one in place; that banks and regulators will work even more closely to address the concerns that have been raised, while independently appointed parties will make sure banks are delivering.
It’s this action, he says, that will provide the best outcome for all Australians.