DAMPENED COMPETITION ONLY DOWNSIDE TO BANKWEST TAKEOVER: CEO

MELBOURNE, Oct 07, 2008 (AsiaPulse via COMTEX) -- CBAUF | Quote | Chart | News | PowerRating -- A lessening of competition between Australia's major lenders is the only economic downside from further bank consolidation, BankWest's chief executive of corporate and business Paul Clark says.

Expect more consolidation within the banking sector, Mr Clark told business leaders in Melbourne as his boss, HBOS Australia's (HBOSA) chief executive David Willis, continued "exclusive negotiations" over a A$2 billion (US$1.45 billion) sale of HBOSA's retail banking arm, BankWest, to Commonwealth Bank of Australia (CBA) (ASX:CBA) today.

"There will be more consolidation in financial services. The only fear I have is that there will be a lessening in competition," he said, adding fears over a lack of competition among Australia's banks is a myth.

Preserving a high degree of competition in the sector would ensure overall stability within the banking sector, Mr Clark said.

Only 15 months ago BankWest embarked on an ambitious retail network expansion across Australia's eastern states, spending over $1 billion to June 2008 to create 3,000 net jobs and open 160 new branches designed specifically to challenge the dominance of the big four retail banks as its UK parent HBOS plc's home market became saturated.

Today, as Lloyds TSB proceeds to swallow HBOS for STG12.2 billion (US$21.34 billion) and rescue it from a mortgage funding shortfall, CBA confirmed speculation it was in talks with HBOS over an acquisition of Perth-based BankWest.

The sale of BankWest could fetch its parent upwards of $2 billion.

Citigroup analyst Wes Nason said $3 billion was book value and BankWest was likely to sell for between $3.5 billion and $4 billion, or 1.3 times book value.

If successful, CBA's move will cement its position as Australia's largest mortgage lender with around 27 per cent of the country's $1 trillion home loan market, ahead of a combined Westpac and St George with around 24 per cent market share according to August loan figures from the Australian Prudential Regulation Authority.

But whether industry consolidation translates into lower mortgage rates for borrowers over the long term is uncertain as major lenders today adopted a cautious response to the Reserve Bank of Australia's (RBA) unexpected, and massive, 100 basis point cut to the official cash rate.

The big four banks passed on 80 basis points worth of the reducing, citing too high funding costs as a key reason no to cut by more.

Mr Clark said funding costs increased for BankWest and lenders were facing "enormous competition" for deposits.

But the impact of interest rate moves on Australia's "very strong" economy would be at the margin, and dwarfed by any significant rise in the unemployment rate, he said.

Westpac (ASX:WBC) was the first of the big banks to move today, cutting its standard variable rate by 80 basis points. Commonwealth Bank, National Australia Bank (ASX:NAB) and ANZ Banking Group (ASX:ANZ) followed, with all reducing their standard variable rates by the same amount.

The impact of dramatic falls in property prices in pockets of some states would not be as severe as in UK and US property markets thanks to "pretty low" loan to valuation ratios set by the local banks, Mr Clark said.

Although Australian banks have been "very astute" in the way they lent money, Mr Clark still sees a complete review of the financial services industry resulting from the credit crisis gripping financial markets and warned against over-regulation of the sector.

"My sense is regulators will be in close discussions with the major banks...it would be dangerous to over-regulate the industry right now," he said.

"I think there will be a much heavier level of regulation in the US."

Higher borrowing costs will trigger a slowdown in the business sector, with BankWest's lending growth rates halving to five per cent from the beginning of the year and falling from 24 per cent a year ago.

"It will be 12 months before we know the extent of defaults," Mr Clark said, adding that there would always be money available for good customers.

"The issue is confidence."

(AAP)

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