The Australian government’s 2017 budget includes a number of measures for the financial services industry. The headlining levy on bank assets affecting the five largest domestic banks is expected to cost A$6.2bn over four years. The structure of the levy will make retail deposit raising all the more central to Australian banking.
News of the Major Bank Levy, which will affect ANZ, CBA, NAB, Macquarie, and Westpac, caused the banks’ stocks to collectively fall by A$14bn the night of the budget, suggesting a negative assessment by investors. The government has structured the new tax as applying just to those institutions, excluding insurers or superannuation funds with liabilities greater than A$100bn. The calculation of the tax will explicitly exclude household deposits up to A$250,000 and will not be levied on mortgages.
Given that residential mortgage lending accounts for between 90–95% of retail bank lending according to our Global Retail Banking Analytics among the big four (Macquarie Bank has a more diversified lending portfolio) retail lending should be largely shielded. On the deposit side, in 2016 the average Australian consumers’ deposit balance was well below the A$250,000 threshold at approximately A$40,000. On both sides of the balance sheet retail banking units are mostly exempt.
With other lines of business and customers directly costing the bank more in tax, it is likely that the retail bank, already important, will become even more key to bank profitability among the majors. Regardless of whether the big banks will recoup the levy costs in higher fees for customers, the government has incentivized them to bulk up in a big way on retail assets and liabilities. Those banks least reliant upon retail deposits for their funding are likely already drawing up plans to attract a greater share of household deposits – which may finally spur real innovation in the savings market.
By Andrew Haslip, Head of Content for Asia Pacific