Morning Briefing: Profitability to beat capital hikes

Fitch: NAB chief hints profitability will outweigh capital hikes… No need for inquiries on credit cards… Young Australians lack financial plan...

Drummond: Capital hikes beaten by profitability targets
National Australia Bank finance boss Craig Drummond says its rivals are catching up fast to the capital high ground it set in May when it raised $5.5 billion, and is convinced NAB can boost its profitability despite the rising capital tide, according to an article in the Sydney Morning Herald.

"We will be in a peer-leading position on capital but Westpac have done a largish dividend reinvestment plan and they have just raised more capital through sales. Once that's done they will be up around 9.5 per cent CET 1 ratio," said Drummond.

If the floor on risk-weighted capital held against mortgages was set at the mid-point of the Murray inquiry recommendations – 27.5 per cent up from the average now for the majors of about 18 per cent – Bell Potter analyst TS Lim forecasts the majors would need to raise about $26 billion of equity to get to an overall level of 10 per cent for CET1 capital.

NAB would still need to raise an extra $2 billion extra to meet the mortgage risk weighting requirements, while the other banks would need to raise $8 billion each. The banks and most analysts agree they are going to have several years to do this, however, and banks are doing it through various means, including DRPs and selling of shares.

No need for inquiries on credit cards: Big Banks
The credit card market is highly competitive and a Senate inquiry into interest rates on cards is unnecessary given the amount of consumer choice, according to an article in the Sydney Morning Herald. 

Opposition Leader Bill Shorten wrote to Prime Minister Tony Abbott on Friday attaching proposed terms of reference for a credit card inquiry by the Senate Economics References Committee.

The proposed inquiry will examine issues including how credit card interest rates interact with the cash rate, the costs to banks of credit card loyalty programs, transaction costs including interchange fees, and the levels of competition in the credit card market. 

"Labor is particularly concerned, as high credit card rates add to the increasing cost of living pressures being faced by millions of Australian families," Shorten said. "I believe such an inquiry is especially relevant at a time when business and consumer confidence remains low and a risk to continuing economic growth."

The ABA also said higher interest rates on credit cards compared to mortgages and some personal loans reflected credit card lending being unsecured and therefore riskier, according to the article.

Young Australians lack financial plan
More than half of Australians do not have a financial plan in place, and many have not even thought about it, according to an article in Yahoo Finance. CUA head of partnership products Ren Mazza says it is alarming that so many Australians are failing to look ahead.

"Without a clear plan in place to manage their money and grow their assets, people are missing an opportunity to set themselves and their families up for a comfortable and secure future," he said. "It's worrying that so many Australians in the later years of their working life - those who have only 15-20 years until they reach retirement age - haven't got financial plans in place," Mazza said.

Australians earning a higher income and those with a mortgage were more likely to have financial plans than those on lower incomes and without mortgages.