ABA ups defence of bank profits

With increased bank profitability expected to attract new attacks on the banks over coming weeks, the Australian Bankers Association is upping its defence of the industry's conduct.

In a letter to the Australian Financial Review, released to Banking Day, ABA chief executive Steven Munchenberg attacks claims that Australian banks have been propped up by taxpayers and should now reciprocate with lower rates, fees and/or profits. The letter says Australian taxpayers never "bailed out" banks.

In support of his argument, Munchenberg cites Treasurer Wayne Swan's March 2010 estimate that the federal government will earn $5.5 billion from its guarantee on wholesale bank funding.

The ABA chief says the wholesale guarantee was necessary "despite the strengths of the Australian regulatory and banking system" because other national governments guaranteed their banks.

"Australian taxpayer dollars were never seriously at risk and taxpayers will actually earn some $5.5 billion dollars from the banks for [the wholesale guarantee]," Munchenberg says in the letter.

The ABA appears increasingly concerned about a new push for regulation of bank profits. The Commonwealth Bank attracted criticism after its Wednesday announcement of what much of the news media called a "record" $5.66 billion profit.

Munchenberg's letter was written in direct response to a Friday column in the Financial Review by former Federal Opposition Leader and Macquarie Bank economist Dr John Hewson. Hewson wrote that the major banks were "gloating about 20-plus per cent increases in profitability".

Hewson asked whether Commonwealth Bank chief executive Ralph Norris felt shame over having relied on the government's wholesale funding and deposit guarantees "and the generosity of the average taxpayer". And he said the banks must live up to their corporate social responsibilities or be re-regulated.

Also following the Commonwealth's announcement, Opposition Treasury spokesman Joe Hockey said banks were "thumbing their nose at the government and they're enjoying the fact that there is a lack of competition in the mortgage lending market".

Two weeks ago the left-leaning Australia Institute issued a report that among other things recommended capping the banking industry's annual profits at one per cent of GDP, a third of its current level.

Over the past year the major banks have shown rising concern about community dissatisfaction with the industry. Westpac has been battling bad publicity over December's 40-point mortgage rate rise, the NAB is advertising itself as "more give, less take", and the ANZ has decided to embrace public scepticism about the industry with its "Barbara from Bankworld" ads.