Days of high returns on equity have past, says Kelly
THE days of banks posting returns on equity of 20 per cent or more are long gone, the Westpac chief executive, Gail Kelly, says.
THE days of banks posting returns on equity of 20 per cent or more are long gone, the Westpac chief executive, Gail Kelly, says.While it is still desirable for banks to boost their profits, aiming for returns on shareholder funds of 20 per cent or higher has not been sensible since the global financial crisis, she said. "Those days of the 23 to 22 per cent ... I think those days are gone."Mrs Kelly 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.The Bendigo and Adelaide Bank managing director, Mike Hirst, told the same forum: "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."The Australian Prudential Regulation Authority chairman, John Laker, said he had no problem with banks making returns in the mid-teens but he agreed that anything more than 20 per cent was no longer appropriate. "I think the message is getting through," he said.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 in response to complaints from 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 many "disturbingly similar" cases involving Commonwealth and Bankwest, and arrangements for business borrowers needed improvement.
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