'Told you so', says ABA on funding costs

by Adam Smith23 Mar 2012

The Australian Bankers' Association has pointed to comments from the RBA, saying they confirm bank claims of higher funding costs.

Reserve Bank assistant governor Guy Debelle has told the Australian DCM Summit in Sydney that banks face cost of funding pressures which are increasingly detached from the RBA's official cash rate moves.

"Compared to mid-2007, the average cost of major banks' funding is estimated to be about 120-130bps higher relative to the cash rate," Debelle said.

Most of this increase occurred in the midst of the GFC, Debelle said. However, he argued that banks have seen a further 20-25bp increase in funding costs relative to the cash rate since mid-2011.

ABA chief executive Steven Munchenberg suggested that the comments vindicated banks' complaints over funding cost pressures and shrinking interest margins. The ABA said banks have passed on only around half of the increased costs to borrowers.

"Banks are making some difficult decisions. They need to balance the concerns of borrowers on the one hand with the interests of lenders - including retail depositors and superannuation funds - on the other," he said.

Munchenberg also defended the profitability of banks, saying it provided a "clear signal around the world" of the stability of the Australian banking system.