SYDNEY Australia's biggest banks will pass on the financial hit from a new A$6.2 billion ($4.60 billion) tax to their customers and shareholders, the companies said on Monday in their first detailed responses to the surprise levy.
Commonwealth Bank of Australia (CBA) (CBA.AX), the country's No. 1 lender, described the tax on liabilities unveiled in last week's federal budget as an "unfair penalty" in a submission to a government consultation process.
"The realities of running a business, whether small or large, are that higher costs are either passed on to customers through reduced service levels or higher pricing, or to shareholders through lower returns," CBA CEO Ian Narev said in the submission. "There is no middle option to absorb costs."
The six basis points levy on bank liabilities is designed to raise about A$1.5 billion a year from the five biggest banks - CBA, Westpac Banking Corp (WBC.AX), Australia and New Zealand Banking Group (ANZ) (ANZ.AX), National Australia Bank (NAB) (NAB.AX) and Macquarie Group (MQG.AX) - over the next four years.
Morgan Stanley analysts said last week the levy would reduce the annual earnings of the big five banks by an average of 4.5 percent if it was not passed on to customers.
ANZ Chief Executive Shayne Elliott said on Monday in a submission that the levy would increase its cost of funding and reduce its competitiveness against large foreign banks operating in Australia that won't be subject to the tax.
NAB Chief Financial Officer Gary Lennon said the tax was "poor policy", with the financial consequences to be borne by customers and shareholders. He said the bank appreciated the opportunity to provide written feedback, but being asked to do so in just two business days was "highly unusual" and reflected poorly on the public policy making process.
Westpac Chief Financial Officer Peter King said the tax design appeared to assume banks would be profitable at all times. There should be an ability to suspend it if it would place financial stress on an institution, he said.
Macquarie declined to comment.
(Reporting by Jamie Freed and Colin Packham; Editing by Muralikumar Anantharaman)