COMMONWEALTH Bank CEO Ralph Norris has told business leaders in Brisbane that the economy is not out of the woods on the same day the Reserve Bank stalled an interest rate hike.
Norris headlined a lunch hosted by the Australia Israel Chamber of Commerce to talk up the next step for Australian banks as the global economy, particularly the US appears rickety.
Norris says that although Australia’s banking and financial systems performed well during the GFC, one area that remains a challenge is the labour market.
“The one area where our flexibility will be challenged is in the labour market, which was flexed well during the GFC as businesses cut back hours of work as opposed to cutting back employment. We now have to test how well this market will perform during the boom,” he says.
Norris assured the corporate cognoscenti that Australia’s AA credit rating is due to having the best regulates system in the world.
“At the beginning of the GFC, there were over 70 banks with a double A credit rating, today there are only a handful of double A listed banks in the world with four of these being Australian,” he says.
“Our four major banks are also ranked amongst the 25 largest banks in the world wide market capitalisation. If we go back five years ago, only one of them would have made it into the top 40.”
He says if rules are sensible, people will normally ‘obey them’ and this has been a characteristic of the banking and monetary model.
“The RBA has had sensible rules and has enforced them intelligently and Australian banks have complied with them,” says Norris.
“The new global rules will be treated in the same way, the banks are already on the way to complying and the official bodies are working to ensure that the system is as profitable as possible. However global regulation is only one aspect of the new world of regulation.”
Norris says competition and sourcing funds is intense and likely to remain this way for a long time.
“The strength of the Australian economy and our proximity and links with Asia, present a very appealing opportunity for offshore banks. Particularly for those banks faced with relatively cheap access to funds. Quite a few offshore banks have already applied for banking licenses in Australia,” he says.
“Competition continues to be intense and we may see competition coming in from sources we’re not currently thinking of. For example, as the cost of credit continues to rise, it sends an invitation to non-banking institutions offering lower cost loans to customers. On the upside, this has the potential to promote innovation within the financial sector.
“On the downside, the risk of non-regulated players entering the market and taking increased risks with their lending and borrowing practices is something for the banks and the regulator to watch carefully.”
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