News: WBC Australia announces new levy on major banks; boosts funding for regulator

The Australian government announced a 6 basis-point levy on the deposits of the country's five biggest banks in its annual budget on Tuesday, a measure that will deliver A$6.2 billion through to 2020/21 as it aims to get its expenses back into the black.

Australia's largest banks - Commonwealth Bank of Australia (CBA), Westpac Banking Corp (WBC), ANZ Banking Group (ANZ), National Australia Bank (NAB) and Macquarie Group (MQG) - will pay the charge on their liabilities including corporate bonds, commercial paper, certificate of deposits and tier-2 capital instruments. Deposits by individuals and businesses are excluded. "The levy is similar to measures imposed in other advanced countries and will complement prudential reforms being implemented by the government and (regulators) to improve financial system resilience," Morrison said.

"By reducing Australia's largest banks' funding cost advantages, the levy will also contribute to a more level playing field for smaller banks and non-bank competitors."

Australia's so called "Big Four" banks - CBA, Westpac, ANZ and NAB - together control 80 percent of Australia's lending market and have posted record profits for years. The four reported a combined half-yearly profit of A$15.2 billion, up 6.2 percent from a year ago, in the latest round of financial results, with their average return on equity climbing 28 basis points to nearly 14 percent - one of the best in the developed world. However, they face headwinds including regulatory pressure to slow lending to speculative property investors amid worries about the risk of a debt-fuelled bubble in the market. Mortgages are a key source of profit for the major banks.

The government also announced a comprehensive reform package as part of Tuesday's budget to strengthen accountability and competition in the country’s financial system. This is on top of Monday’s announcement to initiate an inquiry into competition the sector. The moves are aimed at alleviating public concerns about the dominance of the big banks following a series of scandals in the banking sector and public allegations of abuse of market power.

Treasurer Morrison gave more ammunition to the banking regulator - Australian Prudential Regulation Authority (APRA) - to penalise banks and senior executives for misconduct. APRA will get A$4.2 million in additional funding over four years and an annual A$1 million for a fund to enforce breaches where banks fail to meet expected standards.

The government has also asked Australia's competition watchdog to undertake an inquiry on residential mortgage pricing until June 30, 2018. Last year, the government announced a banking inquiry targeting mistreatment of small business customers. The government also beefed up the corporate watchdog's powers, ordered bank chiefs to make annual appearances before parliament's economics committee and promised a tribunal to examine citizen complaints. Australian banks have themselves promised unprecedented reforms to protect consumers and boost transparency, including reviewing sales commissions, supporting whistle-blowers and black-listing individuals for poor conduct.