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Big banks not too profitable: RBA

Source: ABC News: 25 Feb 2012

The governor of the Reserve Bank says the Australian banking sector is not too profitable.

Appearing before the House of Representatives Standing Committee on Economics, RBA governor Glenn Stevens said that if he had to choose between unprofitable and profitable banks he would chose the latter.

"You only have to look at the dimension of the banking problems in Europe to see we don't want banks that can't earn a good return," Mr Stevens said.

"Are they too profitable? Our assessment is if you look at the rates of return on equity at our banks over a lengthy period of time they're actually broadly in line with the listed company sector in general."

The big four banks have recently come under scrutiny for raising their variable mortgage rates outside the Reserve Bank's official cycle while at the same time posting record profits.

The banks have blamed weak lending growth and rising funding costs for their rate rises as the eurozone's sovereign debt problems slow economic growth around the world.

Mr Stevens said he was not surprised by the move, and confirmed that those funding costs had increased.

"When people say those costs have risen that is true," he said.

"I'm not here to defend the banks - they can defend themselves - but most businesses seek to reflect their costs in the prices of their products if they can, and that industry is no different."

Mr Stevens also told the committee he was comfortable with the current level of interest rates because he did not believe banks would pass on the central bank's December rate cut in full as they eventually did.

"We can't make a precise forecast about these things but I had anticipated that that might not be the case, but it turned out it was ... but overall I think where we're sitting now is about where we should be," he said.

But the Reserve Bank was not planning to intervene in currency markets, he said, as the manufacturing and export sectors come under pressure from the historically high Australian dollar.

Thousands of jobs have been slashed in those industries, but Mr Stevens did not believe intervention would be effective at this stage.

He said Australia's natural resources and its proximity to Asia were behind the currency's strong rise.

"I'm not saying we'd never do it, but we have not done so to-date," Mr Stevens said.

"We do continue to ask ourselves whether what's happening in the currency markets makes sense.

"The most recent bout of strength is happening at a time when the terms of trade have actually peaked and started to come down. That is a bit odd, but we'll see what happens."

ABC News


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