Australia’s fifth largest retail bank, Bendigo and Adelaide Bank has said it has no reason to follow the moves by the major banks and raise more capital.
Speaking at its Annual General Meeting yesterday, managing director Mike Hirst said that recent capital raisings by the major banks, in response to Financial System Inquiry recommendations, will spearhead a fairer go for all banks.
However, the majors still hold less than 65% of the capital required by standardised banks like Bendigo and Adelaide Bank.
“Recent capital raisings by the major banks will ensure that we are better able to compete as they have repriced to more reasonable rates relative to the amount of capital being applied,” he said.
“Even though the majors now have to hold more capital against mortgages, they still hold less than 65 percent of the capital required by standardised banks like us, for those same assets.
“We must continue to provide outstanding customer experience and be highly efficient if we are to maintain our value proposition.”
Due to their much stricter capital requirements, chairman Robert Johanson told the AGM that unless substantial levels of new business was seen, the Bank would have no reason to raise additional tier 1 capital.
“The additional capital that the major banks have been raising lately has been to increase the level of capital they hold for their existing business,” he said.
“Indeed, if we achieve advanced accreditation as a result of the investment in new systems of risk management, we should have the flexibility to ensure that our current levels of capital are sufficient for some time.”
Johanson also said that the rein of high returns to shareholders is likely to come to an end.
“Banking in Australia has enjoyed a long period of high returns on capital being generated for shareholders. We expect that over time these rates of return will reduce,” he told the AGM.
“This seems inevitable in an economy where the risk free rate is at all-time low levels, and where around the world returns on capital employed in banks are much lower than in Australia.
“We do need Australian banks to be, as the Murray report found, unquestionably strong to ensure ready access to international capital markets.”