Commonwealth Bank and NAB have joined Westpac in warning shareholders about the Coalition’s $6.2bn bank levy, saying it will cost them hundreds of millions of dollars each after tax this year.
Standard & Poor’s lowered the credit ratings on dozens of Australia’s financial institutions on Monday, warning the growth in private sector debt and residential property prices had increased the risk of a sharp correction, with “significant” industry-wide credit losses looming.
As the banks piled on the political pressure on Monday, the Coalition and Labor continued to trade blows over the impact of the government’s proposed bank levy in question time.
Malcolm Turnbull attacked Labor leader Bill Shorten for questioning the policy, saying “only a little while ago he was accusing the government of running a protection racket for the banks”.
The government admitted the banks could claim the bank levy as a tax deduction, as the Greens had previously warned, but it refused to provide a dollar value.
As the political arguments rolled on, the major banks began to warn their shareholders of the substantial cost of the government’s bank levy.
Westpac warned the levy would cost the bank $260m after tax a year, saying there was no way it could simply “absorb” the costs and they would have to flow to customers, shareholders, staff, suppliers or “some combination of all four”.
Commonwealth Bank then followed, warning the levy would cost the bank $220m after tax this year, and NAB soon joined in, saying the levy could cost at least $245m a year.
“However the actual cost will not be known until the final legislation for the tax has been passed and we can fully assess its impact on NAB’s business,” the NAB chairman, Ken Henry, said in a note to shareholders.
“The government has said this tax can be simply ‘absorbed’. You know, I know and the government knows that a tax cannot be ‘absorbed’. It must be passed on somewhere,” he said.
S&P said Australia’s financial institutions faced an increased risk of a sharp correction in the housing market, leading to “significant” credit losses.
It lowered the long-term issuer credit ratings on 23 financial institutions by one notch each, including AMP, the Bank of Queensland and Bendigo & Adelaide Bank.
But it left untouched the ratings of Australia’s five biggest banks, including Macquarie Bank.
It said the Commonwealth Bank, Westpac, NAB, and ANZ could assume “timely financial support” from the Australian government in the event of a sharp correction, giving them an advantage.
“Which in our view offsets the deterioration in these banks’ standalone credit ratings,” S&P Global Ratings said on Monday in a note.
That assumption that the government would step in to help the banks appeared to support the Coalition’s argument that the big banks had significant market power and could afford to absorb its $6.2bn levy.
