By Richard Gluyas
ANZ has warned that funding costs could rise again due to ripple effects from financial instability in euro-zone countries.
At the bank’s annual meeting in Adelaide, which was marred by a strong Greenpeace presence due to ANZ’s backing of the carbon-intensive coal industry, chief executive Mike Smith said confidence in the European Union continued to erode, as the sovereign debt crisis expanded from Greece to Ireland and potentially to Spain and Italy.
“While the pace of recovery will be faster in Australia, which had stronger fundamentals before the financial crisis, I need to caution that we are likely to experience volatility as the US and Europe work through these issues, and this includes potential volatility in our funding costs,” Mr Smith said.
The nation’s banking industry has had a jarring week, with CEOs appearing before a Senate inquiry into bank competition to justify their out-of-cycle rate rises and argue before sceptical politicians that the industry is highly competitive.
Mr Smith said some of the proposals in Wayne Swan’s reform package, released last Sunday, might appear “superficially attractive” but public policy driven by populism was likely to be harmful to the economy’s long-term prospects.
The ANZ chief told The Weekend Australian after the annual meeting that the current political environment was “a little bit dangerous” for the banking industry. “The economic success of Australia over the last 30 years is fundamentally a result of sustained economic reform, and it’s been bipartisan, and if that goes backwards we’re in danger of putting the brakes on the economy,” Mr Smith said.
“I don’t think people understand the significance of this. But they would if they could see what’s going on in Ireland.”
During the meeting, chairman John Morschel said banks had lifted residential mortgage rates by 120 basis points more than the Reserve Bank, but they were “fairly priced” having regard to the bank’s costs and risks.
He called time on several shareholders asking questions about ANZ’s lending to the carbon-intensive coal industry.
Mr Morschel said lending to coal-fired power stations accounted for 45 per cent of the bank’s energy portfolio, with a further 30 per cent to the renewables industry and 25 per cent to gas-fired power stations.
About 80 per cent of Australians, he said, relied on coal for their electricity, and “the lights would go out” if those power generators were not funded. In response to another question about pricing carbon in commercial loans, Mr Smith said there was no global standard.
He urged the government to create a carbon price “as an inevitable way forward”.
All five resolutions were comfortably passed at the meeting, including the remuneration report and a grant of performance rights to Mr Smith.
But the Australian Shareholders Association voted against the remuneration report and Mr Smith’s share package, arguing for a five-year performance hurdle instead of three years.
One shareholder lamented that the banks had been unable to communicate their message.
Source : TheAustralian.com.au
