ANZ Chief Complains of Overregulation, Making it Harder to do Business in Australia

Because of the strong pressure Australian banks are facing to pass in full the 50 basis points overnight cash rate made by the Reserve Bank of Australia (RBA) on Tuesday, ANZ Bank Chief Executive Mike Smith complained on Sunday of the barriers that make it harder for companies to do business in Australia.

He cited overregulation and political uncertainty as examples. His statement indicates banks, which have been criticised for making a lot of money while refusing to pass in full the benefits of lower interest rates, would defend their recent decision to keep some of the interest rate cut to themselves because of the high cost of wholesale funding.

ANZ logged a first half profit of $3 billion last week, and when the bank announces on Friday its monthly interest rate decision, it is expected to withhold some part of the rate cut.

Mr Smith specifically cited the call by Treasurer Wayne Swan for banks to pass the rate cut in full. Three of the big four banks did not heed the call and instead kept part of the rate cut for themselves: Westpac kept 13 points and passed 37 points, National Australia Bank kept 18 points and passed 32 points while Commonwealth Bank of Australia retained 10 and passed 40 points.

However, Mr Smith admitted that the outcry from borrowers and government officials is stronger than that from depositors and bank shareholders who benefit from higher interest rates on deposits and higher bank profits.

He pointed out the three million ANZ depositors would be negatively affected by an interest rate cut versus 800,000 mortgage holders who would benefit from the overnight cash rate reduction.

"The value of deposits is now much more relevant than it was and that's actually a good thing, that's actually sound banking," The Sydney Morning Herald quoted Mr Smith.

Westpac Chief Executive Gail Kelly recognised the value of deposits and announced last week the shift of focus by the bank from sourcing the bulk of its funds from wholesale funding to deposits.

About 82 per cent of fund lent by Australian banks in 2006 were sourced from foreign loans. With wholesale funding cost going up and pressure from the government for the lenders to cut their rates, Ms Kelly said it is about time for Aussie banks to initiate a culture shift from a lending one to that of deposit-taking.

Despite the strong pressure from Mr Swan, only one Aussie bank had fully complied with the pressure to pass in full to borrowers the 50-basis points cut in interest rate. It was only Unicredit WA.

RateCity Chief Executive Officer Damian Smith said despite not passing the rate cut in full, at least five lenders reduced their variable home loan rates which benefits mortgage holders by cutting between $50 and $100 from their monthly amortisation payments.