ANZ Banking Group’s chief executive says Australian banks have sufficient liquidity to deal with the credit crunch caused by the unfolding debt crisis in Europe.
Mike Smith also says he does not see any prospect of a credit squeeze in Australia, at least in the short term, given the good liquidity levels among the local banks.
“There is a massive credit crunch in Europe as banks are shrinking their balance sheets very fast and of course that’s exacerbating the problem because there’s no oxygen for growth,” Mr Smith told reporters after ANZ’s annual general meeting in Sydney on Friday.
“So Europe has got an issue. In Australia we don’t have that problem,” he said.
“If credit markets in Europe were to stay closed for another six months, then that would be a different thing but I am not that pessimistic.”
Mr Smith said he rated the chance of a recession in Australia as “low, very low”.
Echoing comments from the heads of Australia’s other big banks, Mr Smith said funding costs were rising and offshore wholesale markets were effectively closed.
Asked when ANZ would need to tap into those markets for funding, Mr Smith said: “That depends very much when they open.
“I think it will probably be mid-January before we start to see markets open up again. I sincerely hope they do.”
Australia’s big four banks agonised for two days after this month’s Reserve Bank of Australia’s (RBA) cut in the cash rate.
The big four cited the increasing cost of sourcing funds because of Europe’s debt crisis and tough competition for deposits in Australia.
Eventually, and amid tough talk from Federal Treasurer Wayne Swan, all four chose to pass on the RBA’s 25 basis points cut in full, citing a desire to support customers.
ANZ last week said it intended to move away from the RBA’s monthly meeting for setting its borrowing and lending rates.
Mr Smith said the ANZ was working on a transparent system for calculating rates that was easily understood by the public.
“What we should be seeing is probably more frequent adjustments in terms of small amounts going up and down,” Mr Smith said.
“I’ve got some boffins working on it,” he told shareholders.
The weakness in Europe could have a silver lining for ANZ, as the European banks look to sell assets to improve their balance sheet.
That process could “shake out a few opportunities” for ANZ to speed its Asian expansion, Mr Smith said.
“We look forward to taking that opportunity,” he said.
ANZ chairman John Morschel said newspaper reports that Australia’s banks would have to perform a stress test on their assets within a week was incorrect.
The report said the banks had been asked to determine their ability to cope with negative economic growth, a 12 per cent jobless rate, 30 per cent falls in house prices and 40 per cent slump in commercial property values.
“If it is in the press it must be right, but in this case it’s wrong,” Mr Morschel told shareholders in response to a question.
“We are not aware of any requirement from APRA (Australian Prudential Regulation Authority) to complete a review on that basis within a week.”
Mr Smith said measures to improve ANZ’s credit book, liquidity portfolio and capital ratio over the past four years had left the bank “much better placed” to handle such a scenario.
“I’m not too worried,” he told reporters.
ANZ closed up 15 cents, or 0.72 per cent, at $20.93 on a day the broader market advanced about half a per cent.
