Latest / Best of Business / Mark Wilkshire: The Co-Operative Bank chief executive on the new changes set to impact the Reserve Bank

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Mark Wilkshire: The Co-Operative Bank chief executive on the new changes set to impact the Reserve Bank · Best of Business

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  Speaker 1: You're listening to a podcast from NEWSTALKSEDB. Follow this and
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  Speaker 2: Speaking of the Reserve Bank, they are changing some banking
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  Speaker 2: rules and there is just a glimmer of hope that
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  Speaker 2: it might result in lower mortgage rates for all of us,
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  Speaker 2: So we're interested in this. Banks will no longer be
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  Speaker 2: required to hold as much capital in case they run
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  Speaker 2: into trouble, get into a tight spot. Those were the
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  Speaker 2: rules that Adrian or put in place. You'll remember it
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  Speaker 2: was for a worst case scenario, but the result was
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  Speaker 2: higher funding costs for banks, which they've been telling us about,
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  Speaker 2: worse competition for customers. Mark Wiltshire is the chief executive
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  Speaker 2: at the Cooperative Bank and joins me this evening, Mark,
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  Speaker 2: Good evening.
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  Speaker 3: Good evening, Ryan.
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  Speaker 2: So how does this change affect the Cooperative Bank or
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  Speaker 2: does it?
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  Speaker 3: Yeah, it does a couple of things. Really, it's good
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  Speaker 3: news for smaller banks. It basically lowers the amount of
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  Speaker 3: capital you have to set aside in case of emergency.
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  Speaker 3: So you want banks to hold some capital, but too
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  Speaker 3: much as a drag and a cost and a constraint
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  Speaker 3: on getting out there and competing for customers. So you
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  Speaker 3: want to encourage competition, So for us, it allows us
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  Speaker 3: takes that constraint away by lowering that amount of capital
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  Speaker 3: so we can get out there and have more appetite
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  Speaker 3: for growth.
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  Speaker 2: The total is three point four billion less. I'm told
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  Speaker 2: how much less would the co op Bank need to
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  Speaker 2: or be required to hold.
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  Speaker 3: Yeah, it's quite significant. So in percentage terms, the old
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  Speaker 3: rate was about seventeen percent of the capital ration and
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  Speaker 3: it drops down to fourteen, so quite a significant reduction
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  Speaker 3: for us. We'll run the numbers on exactly where we
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  Speaker 3: want to land because we do our own assessment as well.
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  Speaker 3: Now we've got this, but that lower minimum is a
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  Speaker 3: big help.
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  Speaker 2: Does it and does it mean that the system is
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  Speaker 2: more risky?
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  Speaker 3: No, I think it's achieving the right balance and they've
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  Speaker 3: aligned this with Australia as well, very consistent with the
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  Speaker 3: APPA rules. So they were pretty high before, so I
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  Speaker 3: think they've come back to a better at a level.
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  Speaker 3: And it's that balance of you want resilience, but you
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  Speaker 3: don't want to be too much of a cost that
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  Speaker 3: gets passed on to customers. So this should flow through
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  Speaker 3: to customers by allowing more competition and allowing particularly domestic
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  Speaker 3: banks to challenge more.
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  Speaker 2: So, Yeah, on does that mean Mark that we will?
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  Speaker 2: Does it benefit smaller banks more so than the bigger
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  Speaker 2: Australian ones or is it everybody's on an even keel.
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  Speaker 3: It does benefit the overall the total market, but I
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  Speaker 3: think it particularly benefits the smaller banks. Not everyone will
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  Speaker 3: be happy, but for us, we think it's a really
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  Speaker 3: good positive step and we certainly think it benefits us
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  Speaker 3: materially and allows us to actually go out there and
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  Speaker 3: grow our mortgages more and compete harder for those mortgages.
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  Speaker 2: Are you going to get When you say compete, do
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  Speaker 2: you mean you'll give us cheaper mortgage rates? Mark?
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  Speaker 3: Yeah? I mean you've got to take into account other
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  Speaker 3: things like the overallrace environment at any point in time.
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  Speaker 3: But it does mean you're taking away some of that
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  Speaker 3: cost when you factor' ed into your pricing decisions. So
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  Speaker 3: you know, it's we're in a slightly right rate environment
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  Speaker 3: right now, but now we've hit the largely hit the
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  Speaker 3: bottom from expectations, so it doesn't necessarily immediately translate through
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  Speaker 3: to the rates today, but it will have that effect overall.
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  Speaker 2: Speaking of the increase in rates, we've seen some banks
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  Speaker 2: move some haven't you guys have moved on that and
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  Speaker 2: does what Arna Brennan say said the other day, does
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  Speaker 2: that have any impact on you?
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  Speaker 3: It had a bit, so it took a little bit
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  Speaker 3: of the heats, but not a lot. So you know,
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  Speaker 3: we passed on about half of what those health our
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  Speaker 3: rates were rising. They moved up fifty to sixty points.
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  Speaker 3: They came back a little bit, but really only at
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  Speaker 3: the margin. So we've passed on about thirty points onto
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  Speaker 3: customers for fixed rates. And that's really important to signal
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  Speaker 3: to customers that rates are starting to move up in
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  Speaker 3: those longer terms, but still offering a really good committive
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  Speaker 3: rates at the short terms as well.
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  Speaker 2: Does that mean in your eyes for those longer term
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  Speaker 2: rates the only way they are going from here now
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  Speaker 2: is up.
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  Speaker 3: Well, that's what the market is pricing. And so for
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  Speaker 3: banks to offer fixed rates and certainty for customers, they
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  Speaker 3: have to hedge those in the interest rate mark and
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  Speaker 3: those interest rate markets look at the longer term signals,
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  Speaker 3: so they're not looking at what happened in November. They're
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  Speaker 3: looking at what's happening in two to three years time.
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  Speaker 3: So that outlook is increasing now and certainly the commentary,
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  Speaker 3: and the outlook was for that to start increasing. So
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  Speaker 3: that's why the longer term rates are starting.
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  Speaker 2: To each up.
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  Speaker 3: So I think if we're not at the bottom, we're
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  Speaker 3: somewhere close to it, and we'll wait and see whether
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  Speaker 3: there's another ocr cat or not. Certainly the new Reserve
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  Speaker 3: Bank governor has left that door open. But we're somewhere
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  Speaker 3: near the bottom of that cycle, so the longer term
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  Speaker 3: outlooks up.
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  Speaker 2: Mark, appreciate your time. Thank you very much for being
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  Speaker 2: with me. Mark Wiltshire, who's the TV executive at the
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  Speaker 2: Cooperative Bank.
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