While the big ‘bank tax’ announced in last week’s budget was pitched as a way of bringing an equal playing field between majors and non-majors, experts have warned that the measure could adversely impact consumers in the long term.
The new levy equates to six basis points on net liabilities at the five biggest banks. Assuming up to 80% of all liabilities are captured, this could equal 4-5% of the annual profit of the big four banks, said Martin North, principal of Digital Finance Analytics (DFA).
One of the options the big banks have to cover this cost could be inflating mortgage rates on products such as mortgages, he warned.
“Whilst the ACCC has been charged with looking at mortgage rates and how they move, given the many moving parts between changes to capital ratios, repricing to adjust volume flow (especially in investor and interest only loans), and competitive issues, it will be hard to unscramble the egg to identify repricing connected to the levy within the bank treasury function.”
With APRA poised to revise capital ratios in the near future, this will just add to the confusion, he said.
Analysts from Morgan Stanley noted these proposals add to the emerging headwinds for the banks which may prompt the start of another earnings downgrade cycle.
“In our view, they will try to offset the impact of the levy via lower rates on deposits and/or higher rates on mortgages,” they wrote in a client note.
The analysts predicted that to offset the earnings impact of the levy, the four major banks would have to raise mortgage rates by 20 basis points.
Peter White, executive director of the Finance Brokers Association of Australia (FBAA), warned that these types of rate rises were highly likely.
“I dare say the banks won’t simply absorb this levy, and if they don’t, this will be a bad outcome for home loan and business borrowers,” he said.
“It’s possible the banks could raise interest rates and that could put housing affordability out of the reach of more borrowers, so we are urging the banks to give an ironclad guarantee that they won’t pass on those costs.”
The Australia and New Zealand Banking Group (ANZ) has already implied an impact from the new levy with chief economist Richard Yetsenga saying the bank tax is “likely to hit consumers” in a BlueNotes blog entitled Budget 2017: growth ambition.