Bank bosses prepare to tackle Treasurer over proposed rural levy

Australia’s major bank bosses will face off against Jim Chalmers in Canberra this week, days after his proposal that would have lenders pay up to keep rural branches open.

Westpac would have to pay $100m annually under a proposed new rural bank levy. Picture: Britta Campion

Australia’s major bank bosses will face off against Jim Chalmers in Canberra this week, days after the Treasurer stunned the industry by lobbing a proposal that would have lenders stump up hundreds of millions of dollars a year to keep rural branches open.

The Australian Banking Association Council, chaired by NAB chief executive Andrew Irvine, meets in Canberra on Wednesday, with the proposed new $350m rural banking levy promising to be front and centre on the agenda.

Dr Chalmers will meet with bank bosses to discuss the deeply divisive proposal in which Bendigo Bank and NAB emerge as major winners of the levy – Bendigo Bank will pocket an estimated $200m of the $350m total, while NAB would benefit to the tune of $75m, under a redistribution model that would effectively be funded by their competitors.

Westpac will take the biggest hit, at a reported $100m, while Commonwealth Bank and Macquarie would have to stump up $75m each. ING will pay $60m, while ANZ and HSBC could each have to pay $20m.

But the industry has raised questions over Treasury’s modelling, with sources saying it was deeply flawed and did not paint an accurate picture of the rural operations of some lenders.

The idea that banks would pay Bendigo Bank the equivalent of close to 40 per cent of its fiscal 2024 cash earnings was met with disbelief, sources said.

The proposal also penalises digitally focused lenders such as Macquarie and ING, both branchless banks, with some warning the levy would raise costs, make it harder to be price competitive, and could even have Macquarie exit the home lending market.

MST Marquee banking analyst Brian Johnson said the levy would deliver a 1.9 per cent hit to Macquarie’s earnings this year, and a 1.5 per cent hit to Westpac’s earnings. CBA’s earnings would take a 0.7 per cent hit and ANZ’s 0.3 per cent. But Bendigo Bank’s earnings would jump 37.3 per cent, while NAB’s would lift 5 per cent.

“With a federal election looming, a ‘cost of living crisis’ triggering electoral discontent, the structural shift in retail banking from physical to digital, Australian banks’ branch networks shrinking and an opposition-led Senate inquiry into regional banking, the politics of Australian banking looks challenging,” he said in a note. Incentivising banks to retain regional bank branch networks would encourage sub-optimal investment, he warned: “An ageing population sees a fundamental, irreversible shift from physical to digital. This analyst fears the RBSO levy simply incentivises uneconomic investment by banks and possibly allows sub-optimal service by telcos.”

It could also mean Macquarie either exiting retail banking or hiking home loan rates and cutting deposit rates, he warned.

Treasury’s modelling looked at banks’ regional branch and ATM presence and assessed the size of their household deposits. Under the proposal, lenders with a large regional presence relative to household deposits would benefit from the levy, while those with large deposits and a small regional and rural presence would not.

CBA and Westpac have the biggest household deposit share, at 27 per cent and 21 per cent of the market. On the orders of Treasury, bank executives have signed nondisclosure agreements about the levy proposal, preventing them from talking to The Australian about the consultation or its potential impact.

The proposed levy follows substantial branch closures by the major lenders in recent years as digital take-up has accelerated – 2334 branches have disappeared since mid-2017, leaving about 3360 across the nation, data from the prudential regulator shows.

Just 39 branches remain in very remote areas, almost half the level in 2017, and 91 branches in places deemed ­remote.

Originally published as Bank bosses prepare to tackle Treasurer over proposed rural levy