The increasing risk profile of businesses may have as much to do with the effective rise in the cost of borrowed funds to business as do higher funding costs, ANZ chief executive Mike Smith told an audience of select customers last week,
The Australian reported.
Smith told about 100 customers from large businesses at a board dinner early last week that ANZ's margins would expand for the foreseeable future, the newspaper reported.
This was due to higher funding costs, as well as the repricing of loans to reflect greater risk following a spate of internal ANZ downgrades of customers due to deteriorating business conditions.
Smith's comments echo sentiments expressed yesterday in an interview with Joseph Healy, executive general manager, business and private banking at National Australia Bank, published yesterday in The Sheet.
Healy said that the premium that banks charged business borrowers has gone up anything from 30 per cent to 100 per cent. He said this depended on two things: the risk of the underlying company and its industry; and also the term of that funding.
One reason business borrowers are still experiencing increases in spreads is that many facilities still have to be renegotiated as they roll over from terms agreed during more favourable times.
Healy did, however, remind borrowers to "not lose sight" of the fact that interest rates have come down a lot.
"So even if the risk margin has gone from 50 to 75, the base cash rate is down. If businesses are paying a higher risk premium they are doing so off a lower cost of funds. Overall funding costs are coming down."