ANZ shrugs off high business loan rates claim

ANZ's chief executive has dismissed a claim that banks are keeping business lending rates high because there is little public pressure to reduce them.

Reserve Bank governor Glenn Stevens has told a parliamentary committee banks have not felt the same amount of pressure to bring down business rates, as they have to lower home loan rates.

But Mike Smith says the high cost of funding loans is what is keeping business rates high.

"The Australian banking system is still reliant on wholesale funding from overseas, it's still more expensive than it's ever been and that shows no sign of easing, at the moment," he said.

"I mean, a little bit, but nothing significant."

Mr Smith is forecasting that more of ANZ's mainstream customers will soon start running into trouble with debt.

He says at the moment, bad debts are emerging from its business and higher-risk customers.

But he expects in the second half of this year that mainstream borrowers will struggle to pay back debt as unemployment rises.

"Although Australia might escape having consecutive quarters of negative GDP growth, given the emphasis that the Government has placed on avoiding this, it seems certain that Australia will experience a significant economic slowdown during the year," he said.

Mr Smith has urged the Government not to over regulate in the wake of the financial crisis.

He says more regulation of the finance sector will become a permanent feature in future.

But he says the fact that Australia's four big banks are now among only 11 in the world with AA ratings, highlights that Australia's regulatory system is already working well.

"It will be crucial to both the short and longer term prospects of the global economy that governments resist the pressures to over regulate," he said.

"Rather they should concentrate on compliance of existing regulation, which as Australia has demonstrated can work very well."

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Fri 20th February 2009 - 04:31pm