National Australia Bank hinted at the persistence of a lower target for bank profits in an interview with
Business Spectator.
Michael Ullmer, the bank's deputy chief executive, said NAB will operate in a profit ranging from 16 per cent to 18 per cent and measured by return on equity.
In the interview, Ullmer said: "What a lot of people are saying is that... an aspiration of a 20 per cent return on equity may be... [too] ambitious."
"If you go to the UK, for example, where we've obviously got a greater exposure than others, people are talking about whether ROEs are now going to be in the range of 12 to 15 per cent.
"My guess, in Australia, is that we should stick to an aspiration target of an 18 per cent return on equity... So, you'll see banks operating more in that sort of 16 to 18 per cent range, because we have always got to balance the expectations of our shareholders, so that we can tap capital markets when we need to... [That is what you] have to do on the customer front in order to remain relevant to your customers and grow market share."
Five months ago, Mark Joiner, NAB's executive director of finance, told a conference that banks would "seek to work their way back to 18 per cent to 20 per cent." Joiner was speaking at an Australian Centre for Financial Studies event.
Ullmer's top target bumps into Joiner's target, but the targets do not overlap.
There are many constraints on the profit targets banks can realistically pursue. Among them are slack credit demand from business; faltering credit demand from households; rising levels of capital, and the latest regulatory efforts to patrol bank profits.
In December, the then Treasury secretary Ken Henry asked: "Is a 15 per cent post-tax rate of return on equity too high or too low?" Henry was speaking at an Australian Banking and Finance conference.
Fifteen per cent is the 18-year average profit of banks during the period since the early 1990s' recessions, Henry said.