Australian banks worried about government intervention but not so much borrowers' credit risk: PwC survey

Australian banks are more concerned about political interference and regulation than their global counterparts, according to the PricewaterhouseCoopers (PwC)/Centre for the Study of Financial Innovation latest Banking Banana Skins survey. 

The 13 Australian banks that took part in the survey agreed with their global counterparts that macroeconomic risk – the crisis within the global financial system and Europe in particular – is the biggest threat to their operations. 

But Australian banks rated political interference and regulation as far bigger risks than foreign banks, while being less concerned about credit risk and capital availability.

Banking anxieties: Australia vs the world

The findings are telling coming just over a week before the RBA meets on February 7 to decide on interest rates and following the December rate cut debacle when some banks took two days before eventually deciding to cut rates in line with the RBA’s 25-basis-point reduction.

After the December rate announcement some banks slammed the government for putting pressure on them to pass on rate cuts in full (in the face of higher funding costs) culminating in ANZ de-coupling its rate decisions from the RBA, with Bendigo and Adelaide Bank also considering making independent interest rate decisions.

Aside from the political pressure banks have also warned that new capital holding requirements under Basel III as well as a proposal from the International Monetary Fund that they adopt even tougher capital requirements to guard against a collapse in the country's property market would lead to credit rationing and higher interest rates.

One Australian respondent commented as part of the survey: “Excessive / over regulation could reduce lending support from banks, and potentially lead some banks to increase credit risks to offset costs from regulation. Protectionist policies ... stifle banking competition”.

In December last year, then Commonwealth Bank boss Ralph Norris warned that regulator APRA’s hard-line stance on enforcing new global banking rules could result in higher interest rates and a credit squeeze.

According to the PwC, the Australian results reflect “uncertainties in the economic environment and the long journey the Australian banks still have to navigate through ongoing regulatory reforms that are still taking shape”.

Overall, the global survey of more than 700 banks, regulators and market observers found globally anxiety levels are at their highest levels since they were first collected by the Banking Banana Skins survey 13 years ago.

PwC says the rise in anxiety levels is not surprising “given the global financial system, and Europe in particular, is skirting on the edge of a fresh crisis”.

“Certain developed economies are fighting hard to gain momentum amidst painful austerity measures. Regulators, both here and offshore, have responded by unleashing an unprecedented amount of new, often highly complex, regulations.

However, while Australian banks are better prepared for a global crisis (scoring 3.21 versus 2.96), they are more anxious (3.28 versus 3.15) than their global banking peers.

“What will surprise many is how acute the anxiety is for Australia’s bankers, especially when the relative resilience of the nation’s banks and wider economy are considered,” comments PwC.

“To some extent this no doubt reflects the increasing gloom that bankers – no matter which country they work in – regard the immediate future. On a deeper level, it reflects uncertainties in the economic environment and the long journey the Australian banks still have to navigate through ongoing regulatory reforms that are still taking shape.”

“Despite the higher levels of anxiety, Australian bankers feel more prepared to deal with these risks than overseas counterparts. However, the response in Australia came exclusively from bankers; whereas countries with lower scores had input from observers and regulators who tended to be more sceptical.”