May 10, 2017 / 3:17 AM / 2 months ago

Australia banks could make customers pay for surprise tax - analysts

3 Min Read

FILE PHOTO: A customer walks out of a Westpac Banking Corp branch as pedestrians holding umbrellas walk past in central Sydney, Australia, March 30, 2017.David Gray/File Photo

SYDNEY (Reuters) - Australia's biggest banks are likely to pass on the bulk of a surprise A$6.2 billion (3.5 billion pounds) tax to their customers in the form of higher interest rates rather than accept an earnings cut, fund managers and analysts said on Wednesday.

The government on Tuesday announced a six basis points levy on bank liabilities in a bid to raise about A$1.5 billion a year from the five biggest banks - Commonwealth Bank of Australia, Westpac Banking Corp, Australia and New Zealand Banking Group, National Australia Bank and Macquarie Group - over the next four years.

The measure, which also aims to help smaller rivals compete with the banking oligopoly, comes into effect July 1 and was introduced by a centre-right government that has been defending the banks against calls for a wide-ranging inquiry into their practices.

Morgan Stanley analysts said the levy would reduce the annual earnings of the big five banks by an average of 4.5 percent. Westpac said the financial impact of the levy was not immediately clear while representatives of CBA and NAB declined to comment. ANZ and Macquarie did not respond immediately to requests for comment.

"It is clear it is a tax on earnings," Karara Capital investment manager Rohan Walsh said. "I think (the banks) will make efforts to maintain the level of profitability and returns on assets."

Australian Bankers' Association Chief Executive Anna Bligh called the tax a "not a well thought out policy response to a public interest issue."

FILE PHOTO: A woman looks at her iPhone as she walks past a sign announcing a new branch of the Australia and New Zealand Banking Group Ltd (ANZ) in central Sydney, Australia, April 27, 2016.David Gray/File Photo

"It is a political tax grab to cover a budget black hole," she said in a statement.

Shares in the big banks fell by as much as 3 percent on Wednesday, having also declined on Tuesday. The broader S&P/ASX 200 index was up 0.5 percent in early afternoon trading.

A Commonwealth Bank of Australia logo adorns the wall of a branch in Sydney, Australia, May 8, 2017.David Gray

Analysts said the banks could charge customers more to offset the tax costs. The banks may also try and overturn the measure: in 2010, the mining sector funded a campaign against a Labor government over a new resources tax that ultimately helped unseat Kevin Rudd, the prime minister at the time.

Treasurer Scott Morrison on Wednesday said the banks would be "offending their customers" if they raised mortgages because the levy was only imposed on liabilities such as corporate bonds, commercial paper, certificates of deposit and tier-2 capital instruments.

Arnhem Investment Management portfolio manager Mark Nathan said the banks did not view their funding sources as discreet cost pools in that way, which meant they were likely to raise rates on all customers.

"In so far that banks were able to hold their dividends prior to this I don't think that is going to be the straw that breaks the camel's back because they will pass most of it on," he added.

(This version of the story corrects names throughout the copy that were changed by a technical error)

Additional reporting by Jonathan Barrett; Editing by Miral Fahmy

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