MYSTATE LIMITED — AGM Information 2019

Oct 16, 2019

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Media release

17 October 2019

Bank criticism fails to recognise balance of competing interests, says MyState

Hobart, 17 October 2019: At today’s MyState Limited (ASX:MYS) annual general meeting, MyState Chairman Miles Hampton and MyState Managing Director and Chief Executive Officer Melos Sulicich attacked the federal government’s criticism of banks for failing to pass on in full the Reserve Bank of Australia’s interest rate deductions.

Mr Hampton said the government’s criticism failed to recognise banks needed to balance competing interests.

“Borrowers want the lowest possible interest rates on loans, depositors want the highest interest rate on their deposits and shareholders have a right to expect a reasonable return for their capital that facilitates the whole banking process.

“At the end of the day our borrowers, depositors and shareholders decide if we have got it right. If our loan rates are not competitive borrowers will go elsewhere, but we continue to see strong growth in our loan book. If our deposit rates are uncompetitive there will be an outflow of our most important source of funding. Our innovation and competitiveness are helping to secure strong growth in retail deposits.

“Without a reasonable return to shareholders our access to capital will reduce, diminishing our ability to facilitate the important intermediary role we play in the Australian economy. Our shareholders have endorsed our balance of competing interests with a relatively stable share price and strong participation in our dividend reinvestment plan.

“If the market tells us we’ve got it wrong, we make appropriate adjustments.”

Australians need a strong banking industry

Mr Sulicich said that the Australian economy needed a strong but competitive banking industry.

“We are operating in a low and falling interest rate environment, the likes of which we have never seen before. This is challenging and our recent decision not to pass on the full rate cut was necessary to ensure the sustainability of our business.

“The banking industry has a fundamental role in helping customers to realise their financial goals and dreams and in supporting them with financial products and services that can make a difference in their lives and to the Australian economy.

“With interest rates nearing zero and even moving into negative territory in some developed countries, it will be increasingly difficult for Australian banks continue to pay depositors positive interest rates for their money or a dividend that recognises investors’ cost of capital.

“Instead of scoring points by bank bashing the government needs to focus on the harder task of enabling a competitive environment in which more than four banks are able to compete effectively,” he said.

“Our shareholders include investors who both support our role in the community and rely on us to provide sustainable returns.

“Smaller banks’ ability to compete has been crimped as we need to hold more capital on the same loans and funding is more expensive. Removing regulatory impediments will enable smaller banks to provide more of the competition that Australian consumers are demanding, while allowing prudent banking decisions consistent with a stable, sustainable and competitive banking system.

Smaller banks providing competition

Smaller banks were creating competition in the market but were constrained by entrenched regulation that favoured the bigger banks, said Mr Sulicich.

“In our opinion, the banking environment and competitive and regulatory landscape remains tilted away from smaller banks like MyState. We need to hold more capital than the larger banks for similar loans and the larger banks still receive funding cost advantages due to an implicit government guarantee.

“This reduces smaller banks’ ability to earn a return and compete for customers. We continue to talk to the government and regulators to find ways to address this imbalance.

“Our investment in contemporary financial and risk management systems supports our strong risk management practices. However, while we have new technology platforms and innovative products, our cost of servicing a home loan remains higher than that of a big bank due to regulation despite identical risk. This reduces reward for innovation and competition, helping to sustain the margins of big banks.”

Low interest rate environment creating uncertainty

Mr Sulicich added that concerns about lower interest rates not working were increasing uncertainty in the market.

“We are finding that consumers are paying down debt on mortgages instead of spending on goods and services which low interest rates are expected to promote, and the government needs to stimulate the economy to address this imbalance. This could be assisted by unshackling the constraints of banking competition which have skewed lending practices and stymied the market.” he said.

ENDS

Media Enquiries:

Ashley Rambukwella Financial & Corporate Relations (FCR) 02 8264 1004 / 0407 231 282 a.rambukwella@fcr.com.au

About MyState Limited:

MyState Limited is the ASX-listed (MYS) non-operating holding company of the diversified financial services Group consisting of MyState Bank and Tasmanian Perpetual Trustees, a trustee and wealth management company. MyState Bank is regulated by the Australian Prudential Regulatory Authority. MyState Bank and Tasmanian Perpetual Trustees hold Australian Financial Services Licences issued by the Australian Securities and Investments Commission.