HONG KONG (Reuters Breakingviews) - A new levy takes some of the sheen off Australia’s banks. Tuesday’s budget saddled the five big players with a surprise charge based on wholesale funding. That will raise A$6.2 billion ($4.6 billion) over four years for Treasurer Scott Morrison and shows bank-bashing is good politics, even in countries that weathered the financial crisis well.
The levy will cost 6 basis points a year for liabilities such as corporate bonds and commercial paper, and resembles a British scheme in use since 2011. The four main lenders - Commonwealth Bank of Australia (CBA), Westpac, ANZ and National Australia Bank - and investment bank Macquarie, are in the firing line. Credit Suisse strategists estimate roughly 5 percent will be shaved off the quintet’s earnings. Given the wider stock market’s heavy reliance on banking, Credit Suisse reckons that will lop between 1 and 2 percent off earnings across the entire ASX 200 index.
The banking lobby is furious at this unexpected raid. But the impact will be manageable for a sector that enjoys better returns and stronger capital positions than most global counterparts. Heavyweight CBA reported a 16 percent cash return on equity and a 15.4 percent Common Equity Tier 1 ratio in the first half, on internationally comparable measures. Contrast that with, say, France’s biggest bank, BNP Paribas, which reported a 9.3 percent ROE and an 11.5 percent CET1 ratio for 2016.
If anything, the banks are partly victims of their own success. A highly concentrated sector can make good returns and avoid outsized risks but is also a crowd-pleasing target for a cash-strapped administration, even a right-leaning one. A series of recent scandals doesn’t help their cause. The government is also toughening its stance towards the sector in other ways, including imposing a minimum fine of A$200 million for misconduct by large banks and setting up a permanent team of finance-focused competition regulators.
Extra scrutiny could make it harder for banks to pass extra costs onto customers, as they have done recently. Also, politicians may be tempted to hike the levy further. There are other headaches too: most notably, Australia’s housing market is looking increasingly stretched. Add it all up and Canberra’s bank-bashing risks making the Big Four’s valuations of 1.5 to 2.2 times forward book seem a little too rich.
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