Gail Kelly says Europe turmoil is likely to continue to push up the cost and potentially the availability of credit. Photo: AFP
Westpac, Australia's third-largest lender, says higher funding costs will put pressure on margins and it needed to balance economic realities before passing on central bank interest rate cuts to customers.
The crisis in Europe has slowed growth, made customers cautious and hurt revenue in its markets and treasury business, chief executive Gail Kelly said in a statement ahead of the annual shareholders' meeting.
"Higher funding costs are a reality of this environment and are continuing to place pressure on interest margins," Kelly said.
"We are mindful of the impacts of interest rate decision on customers but these must be balanced with what is economically responsible."
Westpac shares were recently down 36 cents, or 1.7 per cent, to $20.24.
Westpac has passed on the last two central bank rate cuts in full to customers joining two other key rivals.
Outgoing Westpac chairman Ted Evans, meanwhile, was resolute in his view on rates at the meeting.
"Interest rates will be set in the market place," he said.
Mr Evans, a former Treasury secretary, also suggested the government should stop jawboning the sector especially as turmoil remains in global finance markets.
"Australian governments must allow our institutions of strength - not least the banking system - the flexibility needed to adapt to a changing world".
The top four banks, which raise $100 billion primarily from Europe and United States to bridge the gap between loans and deposits, have said funding costs are rising signalling they may not continue cutting rates at the same pace as the central bank.
Australian politicians have piled pressure on lenders to pass on interest rate cuts in full, but banks argue the central bank rate influences only a fifth of their funding cost and as result they should be free to decide rates.
National Australia Bank and Australia and New Zealand Banking Group hold their shareholder meetings later in the week.
The annual general meetings come as rising funding costs and slowing loan demand threaten to hurt profit growth at Australia's big banks.
The four big banks racked up a record $25 billion in combined profits this year, in stark contrast to their struggling European and US rivals.
Interest rates are the subject of passionate debates in a country with one of the highest levels of home-ownership in the world. More than one-third of households have mortgages.
Australians are avid Reserve Bank of Australia watchers and have an opinion on what the central bank's next move will be and join politicians in coming down heavily on banks if they resist passing on cuts.
Last week, the big banks took two days to respond to the central bank's rate cut drawing flak from politicians, local media and customers with almost all drawing reference to the banks' record profits.
ANZ, while passing on the rate cut, also distanced itself from the central bank action saying it will review rates on the second Friday of every month compared with the central bank rate review on the first Tuesday.
Analysts expect other banks to follow ANZ's lead.
with Eric Johnston
Reuters
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