Aussie Banks Earn Big but Threats of Global Crisis Stoke Fear
Four of the biggest Australian banks netted together closed to $24 billion in the financial year 2010-2011 and market analysts are forecasting that the growth will continue on this year, by as much as nine percent, according to reports.
The Big Four, namely Australia-New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac Group, have been increasing their profits but while the prospects this year offer north-bound movements, difficulties seen ahead could force them to implement measures that would protect earnings.
Analysts admitted that challenges do exist and foremost of which is the financial crisis battering many European economies, which in turn spawned an environment of sluggish credit growth and higher wholesale funding costs for many banks worldwide.
To save more money, local banks earlier announced of job cuts that according to UBS would place some 7000 banking industry employees under the axe this year.
And ANZ already started the inevitable, revealing this week that some 130 staff will be separated from the company, with the likelihood that more will follow this year as part of the company's efforts to minimize its costs.
The rising costs are not imaginary at all as WSJ reported that CBA released this week about $3.5 billion that represents payment for auction of covered bonds, which stand under the bank's portfolio of loans.
The prevalence of an unsettling business condition caused the other banks to adopt cautionary measures that would remain in place until the general situation improves, which experts said may not come at all this year.
WSJ wrote that ANZ and NAB were downgraded by Credit Suisse recently, which based the decision on troubling cases of small businesses going under and creating piles of bad debts that the two would most likely incur.
Along with that is the wholesale downgrade that Euro economies absorbed last week, setting off more fears worldwide that a serious downturn may happen soon though Australia, according to many economists, may have a buffer it can use if the worst sets in.
Its economy is generally healthy and the cash keeps flowing in thanks to the mining boom currently underway.
Yet the general environment still spurred cautious sentiments within the business community while consumers continue to hold off spending that further pushed down the luck of many retailers.
Those considerations and other outside factors convinced the Reserve Bank of Australia (RBA) to impose back-to-back rate cuts that place the country's benchmark rate at 4.25 percent.
That level, experts said, gives Australian banks the most important tool they need in protecting their finances and even recovering their losses as the RBA does not require them to pass on the benefits of the cuts to customers.
"I would expect that further interest rate cuts by the Reserve Bank will see the four major banks recoup higher funding costs by not passing on the full interest-rate cuts across the lending portfolio," David Ellis of Morningstar Equities told WSJ.
And more earnings can be realized if these banks would defer jumps on their deposit rates, WSJ wrote, giving them sufficient leverage to avert possible losses as the situation deteriorates.