Shareholders in Bendigo and Adelaide Bank (BEN) yesterday heard a now familiar refrain from a bank CEO about whether all of a Reserve Bank rate cut should be passed on.
CEO Mike Hirst told the meeting it was unrealistic to expect banks to pass on the full value of any future cuts in official interest rates to mortgagees.
"There is an expectation in the community that banks should pass on, in full, any rate cut that the Reserve Bank of Australia makes to the official cash rate. As interest rates move lower this is not a realistic expectation for a number of reasons,” Mr Hirst said.
He said the RBA cash rate was a gauge of overnight lending between banks, not their overall cost of funds, which depend on what lenders pay for deposits and wholesale money.
Mr Hirst says banks needed to earn a margin for the risk they took in borrowing over short terms (taking deposits) and lending this money over longer-time frames, known as "maturity transformation". Lenders also take "credit risk" – the reality loans will not always be repaid, and need to be paid for taking this risk.
As rates fall, banks say it is increasingly difficult to cut some of the rates they pay on deposits, because customers may move their money into other assets, and deposits are the cheapest form of finance the banks can obtain (much less costly than wholesale funds in Australia or offshore).
The debate was sparked after the banks’ partial pass-through of the August official rate cut.
Mr Hirst yesterday slammed as “opportunistic” recent commentary that there was a direct link between RBA changes and the rates offered by banks. Mr Hirst however did not say which commentary he was referring to.
Mr Hirst told the Bendigo’s meeting he believed a key cause of the political pressure on banks was home loan pricing.
In the same vein, Mr Hirst told shareholders a royal commission into the banking industry would be “a significant waste of taxpayer and shareholder money”.
Mr Hirst said 14 parliamentary inquiries into banks, the David Murray-led financial system inquiry, and three unsuccessful class actions against banks had failed to uncover any systemic wrongdoing.
"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 told the meeting yesterday
"We agree that there are some issues within the industry that should be addressed, but the most effective solution is the one in place: that banks and regulators will work even more closely to deal with the concerns that have been raised, while independently appointed parties will make sure banks are delivering."
After opposition to his continuance on the bank’s board after 28 years as a director, chairman Rob Johanson told the meeting that the current term will be his last term as a board member.
Bendigo shares rose 0.2% to $11.18. There was no guidance on 2016-17 earnings issued yesterday.
