Boom days are over for banks: Kelly
THE days of Australian banks posting returns on equity of 20 per cent or more are long gone, says Westpac chief executive Gail Kelly.
THE days of Australian banks posting returns on equity of 20 per cent or more are long gone, says Westpac chief executive Gail Kelly.While it is still desirable for banks to grow their profits, aiming for returns on shareholder funds of 20 per cent or higher has not been sensible since the global financial crisis, she says."Those days of the 23 to 22 per cent . . . I think those days are gone," Mrs Kelly said.She said Westpac's target to maintain a return on equity rate of 15 per cent was still appropriate, as long as good risk-management strategies were implemented."I think there are opportunities for growth and it is important that in a sensible managed way we go after those opportunities for growth," she told a business forum in Sydney.Speaking at the same event, Bendigo and Adelaide Bank managing director Mike Hirst said banks held a privileged position in the economy and it was inappropriate for them to chase risky levels of return."The reality is if we're asking for 20 per cent returns from our banks, when the risk rate is 6 or 7 per cent, that is a fairly large risk and I'm not sure there should be that risk," he told the forum.Australian Prudential Regulation Authority chairman John Laker said he had no problem with banks making returns in the mid-teens but agreed that anything higher than 20 per cent was no longer appropriate. "I think the message is getting through," he said. "Part of it is educating investors that the good days are behind us."The comments came as a Coalition-dominated Senate inquiry called for a new code of conduct to give small business borrowers more protection in their dealings with banks.The inquiry was launched partly as a response to complaints from small business owners who were put into receivership following Commonwealth Bank's takeover of Bankwest at the height of the global financial crisis.While the inquiry did not pass judgment on whether the banks had acted inappropriately, it said there had been a large number of "disturbingly similar" cases involving CommBank and Bankwest.Acknowledging the major changes in funding costs facing banks, the senators also called for a sweeping inquiry into the financial system - a proposal rejected by the government. "While Australia avoided the worst of the GFC, this should not be allowed to result in complacency about the structure and performance of our own financial system," the committee's chairman, Liberal senator David Bushby, said.
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