Richard Gluyas | October 27, 2009 Article from: The Australian BENDIGO and Adelaide Bank has warned that proposed changes to liquidity rules forcing banks to hoard enough cash to support 30 days of operations will reduce profits and make it impossible for them to support each other, as they did in the financial crisis.
Chairman Robert Johanson sounded the warning at yesterday's Bendigo annual meeting, where new chief executive Mike Hirst argued the case for an upgrade to the regional bank's BBB-plus credit rating, which would help ease funding pressures.
Standard & Poor's responded that there was no material change in the bank's outlook to justify lifting Bendigo's rating to A.
Last month, on the anniversary of the Lehman Brothers collapse, the Australian Prudential Regulation Authority released a discussion paper proposing a significant enhancement to minimum bank liquidity levels to help ensure the industry can meet its obligations in the next crisis.
A revised prudential standard on liquidity, to ensure banks can survive a crisis for 30 days instead of the current minimum of five days, is expected in the first half of next year.
Mr Johanson condemned the proposal, suggesting it could be counter-productive.
"The proposed new rules ... will, in their current form, reduce profitability, increase borrower costs and make impossible support of banks by other banks," he said.
"This mutual support was a significant help in dealing with the events of a year ago here, when most Australian banks did co-operatively work to support the system and each other."
Mr Hirst, meanwhile, said Bendigo had "never been in a better position" for a rating upgrade, given credit quality remained strong, funding risks had subsided and the Adelaide Bank merger had been successfully bedded down, with the predicted synergy benefits attained.
But Mr Hirst's argument was shot down by S&P analyst Sharad Jain.
Mr Jain said the agency took a long-term view and, while Bendigo had recently reported sound results, they were supportive only of the current rating.
The local banking industry has stood out from its global peers in the financial crisis, with rating agencies making only minimal adjustments to bank credit ratings.
An upgrade to A would confer several advantages on Bendigo, notably a reduction in the charge to use the federal government's wholesale funding guarantee from 150 basis points to 100.
Mr Johanson noted yesterday that Bendigo, which is adequately funded by retail deposits, was the only bank not to have used the guarantee to raise funds offshore.
Other regional banks, such as Bank of Queensland, have argued that the fee to use the guarantee has made it prohibitively expensive.
Mr Johanson also warned about "moral hazard" after the mass bailout of ailing banks offshore.
He said it was a big concern that the bailouts would induce more inappropriate risk-taking, because managers and investors now knew that a taxpayer-funded bailout was always available to them.
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