Economics and Banking – Page 392 – Digital Finance Analytics (DFA) Blog

Why Have Interest Rates Fallen So Far in Asia-Pacific?

As we highlighted recently, global interest rates are lower than they have been for many years, and appear to be locked into a “new normal” which could be close to zero. It is important to understand the mechanisms which have led to this situation, because it is quite possible that the normal assumptions underlying monetary policy (cut rates to stimulate growth; lift rates to control inflation) no longer apply. If this were true, new approaches would be needed, and current unorthodox strategies would need to be re-calibrated. Could it be that demographic shifts and financial sector developments actually explain the shifts, rather than asset price or GDP growth? If true, low rates won’t solve the underlying issues.

The IMF finds that “real interest rates worldwide have declined substantially since the 1980s”. Recent work, (King and Low 2014) estimate a “world real interest rate” and find that the weighted rate has declined from a peak of 4.93% in the first quarter of 1992 to ‒0.48% in the second quarter of 2013. Bernanke (2015) observes the exceptionally low global interest rates, both short- and long-term, are not a “short-term aberration” but a long-term trend.

Timely then, that The Bank for International Settlements (BIS) has just released a staff working paper “Understanding the changing equilibrium real interest rates in Asia-Pacific”, which studies the evolution of the equilibrium real interest rate (i.e. natural or neutral interest rate) in Asia-Pacific.

There are several competing theories behind the decline in equilibrium real interest rates. First, globalisation, especially trade and financial integration have helped forge a global market where domestic factors have begun to play a less prominent role. Financial integration implies that a larger share of global savings is channelled into cross-border financing of investment. In this vein, Bernanke (2005) proposes the “global savings glut” hypothesis, whereby the real interest rate falls to equilibrate the market for global saving as desired saving outstrips desired investment, and saving originating in China and other emerging economies holds down long-term interest rates. Caballero (2006) suggests the existence of a “safe asset shortage” due to rising global demand, as in emerging economies with rapid growth and high savings, there is limited availability of local safe assets in their undeveloped capital markets.

Second, many economists link the apparent decline in equilibrium real interest rates to a “new normal” world of lower potential output and trend growth, manifested in sluggish growth persisting in the major economies following the financial crisis. This has often been attributed to, among other factors, a secular deficiency in aggregate demand, significant financial frictions, unfavourable demographic trends, ebbing innovations, debt overhang, and insufficient structural policies. This may lead to “secular stagnation”, as a low and declining rate of population growth and a slower pace of technological advance result in lower returns, less investment and consumer spending, creating a situation of persistently inadequate demand. This leads to a declining natural rate of interest.

Related to this new-normal slow growth scenario is the “new neutral” thesis focussing on the exceedingly low real policy rates in many advanced and emerging economies alike. McCulley (2003) considers the US natural rate much lower than commonly assumed. In Clarida’s (2014) view, central banks now operate in a world where average policy rates are set well below their pre-crisis levels, a direct consequence of the “global leverage overhang and moderate rates of potential trend growth”. Clarida (2015) suggests that global factors have played a key role, with the lower US neutral policy rate driven by a slowdown in “global potential growth”, and “a persistent excess of global saving relative to desired investment opportunities”.

There have been so far very few attempts to estimate and assess the equilibrium real interest rates for the emerging economies, even less for the emerging Asia. The paper the examines the relationship between the long-run component of real interest rate and those of population characteristics, globalisation, and a range of macroeconomic and financial variables (e.g. credit and asset prices) as well as trend growth in the evolution of the natural interest rates in the region to determine whether these factors may account for the changes over time and differences across countries in the natural rate estimates.

Several results emerge. First, simple estimates suggest that except for China, and also Thailand since 2005, the natural interest rate has declined substantially in Asian-Pacific economies since the early or mid-1990s, by over 4 percentage points on average. In many economies the rate has turned negative. The tendency has become more accentuated in the 2000s, especially since the onset of the global financial crisis and the Great Recession. Second, the natural interest rate estimates vary significantly over time and across the economies. Third, the association seems to be broad and strong between the natural interest rate and the low-frequency trend components of demographic and global factors in Asia-Pacific, but it appears to be weak between the natural interest rate and trends in asset prices, credit-to GDP ratio and trend growth in many economies in the region. In most cases, the natural interest rate does seem to be correlated with broadly measured long-term financial sector development, and trends in saving rate and investment ratio.

Note: BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS.

Will Rates Fall Further?

The RBA statistical release shows the relative policy rates in US, UK, Canada, Japan, ECB and Australia. Looking at the rates from 1999, we see that since the GFC rates have been lower, thanks to unconventional monetary policy. In contrast to other countries, the Australian cash rate has remained higher, for longer, but is at a record low. Will it fall further?

Yahoo7News reports that according to 1300HomeLoan managing director John Kolenda, who last year accurately warned banks would lift their mortgage rates out-of-sync with the Reserve Bank, said the current official rate of 1.75 per cent would be the “new norm”.

The Reserve sliced rates to 1.75 per cent – the lowest level on record – last month over fears about the level of inflation. Prices have been dropping for several months across the country with deflation a real threat in Perth.

Mr Kolenda said consumers were now more sensitive to the impact of higher interest rates which meant taking them back to what was once considered normal was unlikely.

“We are unlikely to see official interest rates move to pre-global financial crisis (GFC) levels and the standard norm of the future will be lower than historical levels for the next decade,” he said.

“The monetary policy game has changed and the RBA has found cutting its cash rate is not necessarily an instant remedy for economic stimulus.

“Conversely, any time the RBA increases official rates in the future could have a disastrous impact on consumer confidence and the economy. Consumers are now very rate sensitive and when they rise they are likely to stop spending and revert to saving.”

Markets are pricing in another interest rate cut by the end of the year although economists believe the Reserve’s next move will be a rate increase.

Mr Kolenda said there was a real prospect the Reserve would cut rates again.

This despite stronger than expected GDP growth, reported recently. Inflation is below the RBA’s lower bounds.

Currently, lenders are heavily discounting their mortgage rates for new loans and refinanced transactions. Property transaction momentum appears to be increasing after a slow few months, and house prices are rising in most states.

So, on one hand, there are good reasons to expect the RBA to cut further, and keep rates low for a long time. On the other, the property market is alive and well, and will be a handbrake on further cuts.

We expect out of cycle rate hikes for many mortgage holders, once the election is passed as lenders attempt to repair their margins, and we are less convinced the RBA will cut again anytime soon, give the current property trends – in fact, we need more macroprudential controls, not lower interest rates. That said, the medium term outlook is for rates to stay low for a long time, and this does mean large mortgages will continue to be serviced as current levels. But any hike in rates would have significant negative impact on households and the economy, given the sky-high debt levels in place at the moment.

Queenslanders get access to ‘good money’ for the first time

NAB says two new innovative Good Money community finance stores will respond to the increasing need for access to fair and affordable financial services for Queenslanders on low incomes.

The Queensland Government is supporting the Good Money stores which will be in Cairns and on the Gold Coast. The stores are a three-way partnership involving financial inclusion organisation, Good Shepherd Microfinance, the National Australia Bank (NAB) and the Queensland Government.

Adam Mooney, Chief Executive Officer of Good Shepherd Microfinance said that he was excited to see the expansion of Good Money to a third state – building on the existing three stores in Victoria and one in South Australia.

“Good Money provides access to the award-winning No Interest Loan Scheme (NILS) which provides small loans upto $1,200 for essential goods and services such as fridges, washing machines or car repairs,” said Mr Mooney.

“We’ve been experiencing increasing enquiries from Queenslanders for our services and these two new stores will strengthen the footprint of NILS across the state, complementing the work of the Queensland NILS network which has a presence in around 115 locations.

“The financial conversations our microfinance workers have with clients positively builds confidence and focuses on the best options available. More than 90 per cent of clients feel they’re better able to budget after speaking with Good Money, and 50 per cent of clients who had previously used high cost payday loans said they’d avoid them in the future.

“The Queensland Government is showing national leadership in investing in financial inclusion to build community and family resilience. This is a wonderful new initiative as part of the Queensland Government’s commitment to its Financial Inclusion Action Plan, announced on Thursday this week,” he said.

NAB, a key partner in the development of the Good Money model first introduced in 2012, has committed $130 million in loan capital to microfinance programs nationally.

Michaela Healey, Group Executive – Governance and Reputation at NAB said the bank had a long history of contributing skills, expertise and resources to improving financial inclusion in Australia.

“NAB is committed to financial inclusion – but we realise we can do so much more when we work together with others. Good Money is a great example of what can be achieved when a bank, government and community organisation make a long-term commitment and come to the table with an open mind and a willingness to work together,” said Ms Healey.

“Over the past 11 years NAB has provided more than 138,000 products to help more than 421,000 low-income Australians access appropriate and affordable financial services. The extension of Good Money stores into Queensland is an exciting development that will make the stores’ vital products and services readily accessible to Queenslanders for the first time,” she said.

Communities Minister Shannon Fentiman said battling financial distress can take a heavy toll on health and relationships.

“Quite often people seek solutions that land them even deeper in debt,” she said.

“These stores will provide real alternatives to unscrupulous payday lender and rent-to-buy schemes to make sure people don’t spiral into debt – especially women, who are the fastest growing demographic accessing payday loans,” said Minister Fentiman.

The Good Money stores will offer the following services:

No Interest Loan Scheme (NILS) – Loans of between $300 – $1,200 for essential goods and services such as fridges, washing machines or education expenses
StepUP Loans – Low interest loans of between $800 – $3,000 with no fees and affordable repayment periods
AddsUP – A matched savings plan of up to $500 offered to people who have successfully repaid a NILS or StepUP loan
Affordable insurance – Simple car and contents insurance with flexible payment options
Referrals to other services – Such as financial counselling which provides information and support to assist people in financial difficulty

It is envisaged that the stores will open for business in 2017.

Good Shepherd Microfinance’s national NILS program is also offered through local community organisations in 115 sites across Queensland.

Brokers to be summoned by ASIC

From Australian Broker.

ASIC has revealed it will be serving notices to brokers to provide data, as a part of its fact find for the mortgage broker remuneration review. However, the FBAA is assuring that brokers should not be worried.

The FBAA’s Peter White, who met with the ASIC team heading up the review in Melbourne yesterday, said the corporate watchdog will be calling on brokers to provide data, following its data collection from lenders and aggregators.

“What will happen as of next week is notices will be served on the lenders for the data collection. The week after that the notice will be served on the aggregators. Brokers will be last on the list to get notices served on them,” White told Australian Broker.

“That will be about two to three weeks away before that happens.”

According to White, ASIC was vague on the specifics of what data they will be seeking, however he told Australian Broker it will be focussed on “drilling down on the borrower profile”.

White also said one “significant sized” lender – he could not reveal who – told him that there could be as many as three million transactions involved in the fact find.

Some aggregators have already submitted data to ASIC as a part of their cooperation with the review. AFG told brokers at its Masterclass in Sydney this week that it has already submitted a significant amount of data to the regulator, proving commissions are not a form on conflicted remuneration.

However, when brokers are summoned by ASIC in the coming weeks, White is assuring them they should not be worried.

“The big thing is that this is not anything to be scared about,” he told Australian Broker.

“The actual sampling of brokers is very small. I’m not allowed to divulge how many but it will be significantly less than 1,000 brokers. Most of the market won’t even know it’s happened.

“But those that do get served notices, ASIC are very keen to let them realise that selection doesn’t mean there is an issue with what they are doing or that they’ve been targeted for anything. It isn’t being done on alpha order either – it is just a random selection.”

ASIC will be calling the brokers selected prior to sending notices requesting the data.

Getting Government Debt In Perspective

A good piece in today’s The Conversation, examines the claim that the current government has lifted net government debt by $100 billion. This is proved to be correct, with caveats. However, some perspective is required in the debate. As highlighted in the piece, an important measure is debt to GDP. On that basis, on an international comparison, Australia is still well placed.

However, a recent report from LF Economics highlights that “while mainstream commentary and attention is firmly focused on public debt, the nation has accumulated a dangerously high level of private debt, including a moderately high level of external debt. Globally, Australia ranks near the top of indebted households. The exponential surge in mortgage debt issuance over the last two decades has generated the largest housing bubble in Australian economic history”. “Australia’s household debt ratio has grown above peaks established in countries where housing bubbles formed and burst, as in Ireland, Spain and the United States,” say report authors Philip Soos and Lindsay David. “So highly leveraged is the housing market that even small declines in residential land prices will have adverse consequences.”

Indeed, Australian households overtook the Swiss as the world’s most indebted this year, with outstanding debt equivalent to 125 per cent of GDP and no let up in sight. Combined owner-occupier and investor loans outstanding have risen from $1.2 trillion to $1.6 trillion in the past five years.

Here is the problem, the economic growth is being stoked by ever higher household debt, which is unsustainable. Why are we not getting better political discussion on this much more important issue during the election? The current economic path which has been set is unsustainable. The chart below makes the point – private debt should be the focus.

As we highlighted from the recent RBA chart pack, household debt to income is also sky high.

And here is data (from 2014) from the OECD showing the relative ratio of household debt to disposable income for Australia, in comparison with other countries.

The issue we SHOULD be talking about is the household debt overhang, and how we are going to deal with it. Government debt, in comparison is a side-show!

It’s time we broke up the retail arms of Australia’s Big Four banks

From The Conversation.

The idea of separating out the arms of the “Big Four” banks like insurance and superannuation from their core banking business is gaining traction in Australia. It featured in the Greens’ banking and finance election policy. However this is not a new idea; Australia is just catching up to banking reforms already made by the UK.

The proposals by the Greens are, in international terms, actually quite tame. The Greens talk about “looking at breaking up the banks,” rather than actually breaking them up. They also suggest applying a “tax deductible levy of 0.20% on the asset base of institutions worth greater than $100 billion” on the “too big to fail” Big Four.

Other jurisdictions have gone much further than the Green’s proposals. For example, following the recommendations of the Vickers’ Inquiry into the UK banking system, banks with assets over £25 billion, will be required from 2017 to split off their retail banking activities into separately managed entities that can be floated off, if the holding company goes belly up. Similar rules are also to be enacted throughout the European Union.

Far from local banks being well-regulated, the latest research on managing systemic risk by the Bank of England shows that Australian banks are simultaneously extreme outliers, in regards to size relative to GDP, yet among the lowest of their peers as regards capital requirements. This is extremely risky, especially given the banks’ exposure to the Australian housing market.

The Australian taxpayer is providing a guarantee for such risky behaviour which the Reserve Bank estimates to be worth some $3.5 billion per year to the big four banks.

One of the Green’s proposed considerations is to investigate:

“The nature of vertically integrated business models, including: i. the integration of everyday banking, financial planning, wealth management and insurance within a single entity; ii. whether the incentives provided encourage illegal or unethical conduct; and iii. whether the incentives provided are aligned with the duty of care to customers.”

This term “vertical integration” is a classic illustration of the problems that arise in so-called Universal Banking. The concept of Universal Banking, sometimes called a “financial supermarket”, in which many financial services are sold under the one roof, goes back to the 19th century in Germany.

This is where German banks not only took deposits and made loans, but also funded and even made equity investments in companies. This one-stop shop was credited with helping to make Germany an industrial superpower in the late 19th century.

On the other hand in the UK and USA, there was strict separation of retail banks and so-called investment (or merchant) banks. In the USA, this separation was enshrined in the famous/infamous Glass Steagall Act of 1933 which was an outcome of the Pecora Commission into the Wall Street Crash of 1929.

In the UK, a strict separation lasted until 1984, when the Thatcher government implemented the so-called Big Bang, which broke down the barriers between commercial and merchant banks. Subsequently, there was a massive consolidation of banks, merchant banks and eventually building societies.

US banks, such as Citicorp and JPMorgan, joined in the takeovers of UK firms even though technically it was still forbidden in the USA. However in 1999, after pressure in the industry and with almost unanimous congressional support, the Glass Steagall Act was repealed and the concept of a one-stop shop for financial products became the accepted business model around the world.

In Australia in the year 2000, NAB acquired MLC Life Limited, which was the insurance and investment arm of Lend Lease. Soon afterwards the other big three Australian banks followed suit, acquiring investment firms and insurance companies. For example, Colonial Mutual insurance was acquired by the Commonwealth Bank to become its scandal-ridden CommInsure subsidiary.

The prevailing model of Universal Banking in Australia is barely 15 years old.

Why did Universal Banking become the accepted model around the world?

There are two arguments usually put forward for Universal Banking: economies of “scale” and economies of “scope.” The argument for scale is, the bigger a bank is, the better it can leverage its resources, especially expensive technology. The more depositors a bank has the more money it can lend and in a sort of virtuous circle, the more depositors the bank can attract, always provided that the banks treat their depositors fairly, of course.

Scale is important. For comparison, the largest retail bank in the world by market capitalisation is the US based Wells Fargo bank which has some 70 million customers worldwide, mainly in the USA. That is about three times the population of Australia.

Last financial year, Wells declared net income of around A$30 billion (US$ 22.9 billion) which is almost identical to the total declared by the Big Four banks. On a per customer basis then, Wells appears not to be as efficient as Australian banks, or just possibly Australian customers may be getting a very raw deal from their banks.

Economies of scope means that a bank, using its presence in the market, can expand the products it sells to existing and new customers. This so-called cross-selling is infuriatingly obvious in Australian banks.

Under a universal banking system banks are offering customers other types of products, they may or may not want. Alan Clark/Flickr, CC BY-ND

An example of this is a consumer, when attempting merely to pay in a cheque, can be bombarded with questions about whether they would like insurance with that. It is a form of diversification, expanding and hopefully stabilising sources of income.

In pursuit of scope, the largest Australian banks have all acquired investment management and insurance companies, bundling these acquisitions up into fashionable “Wealth Management” units. According to KPMG, these units provided a 25% of the Big Four’s profits in 2015. The problem is that the Big Four banks have proved to be not very good at “wealth management.”

The original reason for diving into the wealth management business was the pot of gold that is Australian superannuation, which is growing year on year through mandatory contributions and today sits at just over A$2 trillion – who could lose? Certainly not the superannuation funds managers.

But could they outperform others? Unfortunately not, as the largest bank-owned retail funds consistently underperform not-for profit industry funds – not really surprising as industry funds operate on a not-for-profit basis.

And all the while, people are deserting the retail sector in droves to run their own Self-Managed Superannuation Funds (SMSFs). In 2016, self-managed assets total some A$592 billion or 30% of the total super pot of just over A$2 trillion, exceeding the retail sector and growing each month.

If the prospect was only ever little more than a pipe-dream, it became a nightmare as pensioners lost their savings in the GFC, created incidentally by banks. And today the prospect of even the middle class living in poverty in retirement has become a reality. In Australia, with the average super balance for men at retirement being just less than $300,000 (much less for women), ASFA, the industry body for super funds, concludes that” many recent retirees will need to substantially rely on the Age Pension in their retirement”.

Is the rationale for seeking economies of scope still valid?

Technology has changed everything. In the 20th century, people still went into banks to withdraw or deposit money, to make payments, to ask for a mortgage or to talk about investments.

It was quite possible then for the banks to catch customers at the counter and sell them something they may not want or need but nonetheless may be good for them, like an insurance policy.

But a lot of people don’t go to banks much anymore. They get cash when they check out at the supermarket.

They visit websites or mortgage brokers when they are looking for a mortgage. They search websites that compare deposit and investments offers, and there are a myriad of ways that people can pay bills or make payments for online goods.

People are deserting bank branches for the internet and the importance of face-to face contact and opportunities to cross-sell have diminished.

If there is no pot of gold at the end of the Wealth Management rainbow for banks nor their customers, then the boards of Australian banks must look to strategies other than Universal Banking.

Unfortunately, the subject of banking reform was not addressed fully by the Financial Systems Inquiry, headed as it was by the architect of CommBank’s vertical integration strategy, and the subject has since become a political football.

The Green’s policy would be seen as a minimum and meek in most other jurisdictions, while the industry’s response is shortsighted and defensive. The subject is too important to be trapped in this stalemate.

Author: Pat McConnell, Honorary Fellow, Macquarie University Applied Finance Centre, Macquarie University

Home Lending Sags, Or Does It?

The latest data from the ABS on home lending for April 2016 indicates that overall lending flow fell in trend terms by 0.3%. But within that, owner occupied lending fell 0.5% while investment housing commitments rose 0.2%. In other words, we are seeing a rotation back towards the investment sector. Since then, several banks have relaxed their investment lending underwriting criteria, and have started to offer bigger discounts. The picture is quite complex.

In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions fell 1.8%. But we will stick to the trend data, which irons out some of the bumps.

Looking at the overall stock of loans, it rose again to $1.49 trillion, we see that investment loans comprise 35.6% of all loans, still high

Looking at the monthly flows, we see a fall in owner occupied new loans by value, and a small rise in investment loans. The momentum in the refinance sector has slowed a little, but rose as a proportion of all loans.

Turning to first time buyers, we a rise in the number of new owner occupied and investor loans, together the show around 10,000 new first time buyers entering the market. This is an original, not trend data set.

The largest volume of owner occupied loans was for the purchase of established dwellings, and to total value fell. The proportion of loans refinance rose again, to nearly 35% of all loan values.

Looking at owner occupied loans, the purchase of new dwellings has risen a bit, but is still 4% lower whilst other types of borrowing are relatively static.

By state owner occupied loans grew the strongest in ACT and VIC, whilst TAS showed the largest fall.

Finally, looking at lender type, we see that the non-banks grew the strongest (up 0.8%), building societies lost momentum (down 7%), and banks lent slightly less thin month (down 0.7%).

Household Debt Ratio Grinds Higher And Mortgage Discounts Rise

The latest RBA chart pack, just released, shows that household debt, as a percentage of disposable income continues to rise. Also from our analysis, banks are offering larger discounts again.

RBA data shows interest payments are below their peak, but are also rising (though the May cash rate cut will have an impact down the track as mortgage rate cuts come home). However, given static incomes (which are for many falling in real terms), this debt burden is a structural, and long term weight on households and the economy, and is dangerous. However low the interest rate falls, households will still have to pay off the principle amount eventually.

We are also seeing some relaxing of lending standards now, as banks chase investor loans well below 10% growth rates, and continue to offer cut price loans for refinance purposes. Average discounts on both investment loan have doubled.

ASIC commences civil penalty proceedings against National Australia Bank for BBSW conduct

ASIC has today commenced legal proceedings in the Federal Court in Melbourne against National Australia Bank (NAB) for unconscionable conduct and market manipulation in relation to NAB’s involvement in setting the bank bill swap reference rate (BBSW) in the period 8 June 2010 to 24 December 2012.

The BBSW is the primary interest rate benchmark used in Australian financial markets, administered by the Australian Financial Markets Association (AFMA). On 27 September 2013, AFMA changed the method by which the BBSW is calculated. The conduct that the proceedings relate to occurred before the change in methodology.

It is alleged that NAB traded in a manner that was unconscionable and intended to create an artificial price for bank bills on 50 occasions during the period of 8 June 2010 and 24 December 2012.

ASIC alleges that on these days NAB had a large number of products which were priced or valued off BBSW and that it traded in the bank bill market with the intention of moving the BBSW higher or lower. ASIC alleges that NAB was seeking to maximise its profit or minimise its loss to the detriment of those holding opposite positions to NAB’s.

ASIC is seeking declarations that NAB contravened s12CA, s12CB, the former s12CC, s12DA, s12DB and s12DF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), s912A(1), s1041A and s1041H of the Corporations Act 2001 (Cth) (Corporations Act).

Further, ASIC has sought from the court pecuniary penalties against NAB and an order requiring NAB to implement a compliance program.

ASIC will be making no further comment at this time.

National Australia Bank Group Chief Risk Officer David Gall today issued the following statement:

“Trust in the integrity of our financial markets is crucial to a strong Australian economy. A fair, well-functioning and competitive financial system is crucial to providing the best outcome for customers and the wider community.

“NAB takes its role in upholding high standards of professional conduct seriously. We are committed to service, integrity and ethics and our values reflect this.

“Following an industry-wide review by the Australian Securities and Investments Commission into participants in the Bank Bill Swap Rate (BBSW) market, ASIC has today filed a claim against NAB making a number of allegations including market manipulation and unconscionable conduct.

“These allegations relate to trading in the BBSW market during the period 8 June 2010 to 24 December 2012.

“NAB has fully co-operated with ASIC’s review and takes these allegations seriously. We do not agree with ASIC’s claims which means they will now be settled by a court process.

“As part of ASIC’s investigation NAB has provided emails, instant chat messages and telephone conversations involving our employees. NAB retains this information as part of our business processes.

“We remain committed to serving our customers and ensuring our people demonstrate the values and behaviours the community expects of us.

“As this matter is now before the court, it is not appropriate to comment further,” Mr Gall said.

Background

On 4 March 2016, ASIC commenced legal proceedings in the Federal Court against the Australia and New Zealand Banking Group Limited (ANZ) (refer: 16-060MR).

On 5 April 2016, , ASIC commenced legal proceedings in the Federal Court against the Westpac Banking Corporation (Westpac) (refer: 16-110MR)

Prior to filing against ANZ and Westpac, ASIC’s investigations into misconduct in the BBSW has seen ASIC accept enforceable undertakings from UBS-AG, BNP Paribas and the Royal Bank of Scotland (refer: 13-366MR, 14-014MR, 14-169MR). The institutions also made voluntary contributions totaling $3.6 million to fund independent financial literacy projects in Australia.

In July 2015, ASIC published Report 440, which addresses the potential manipulation of financial benchmarks and related conduct issues.

RBA Cash Rate Unchanged at 1.75 per cent

At its meeting today, the Board decided to leave the cash rate unchanged at 1.75 per cent.

The global economy is continuing to grow, at a lower than average pace. Several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies. China’s growth rate moderated further in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook.

Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years. Australia’s terms of trade remain much lower than they had been in recent years.

In financial markets, conditions have generally been calmer for the past several months following the period of volatility early in the year. Attention is now turning to some particular event risks. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.

In Australia, recent data suggest overall growth is continuing, despite a very large decline in business investment. Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. Labour market indicators have been more mixed of late, but are consistent with continued expansion of employment in the near term.

Inflation has been quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.

Low interest rates have been supporting domestic demand and the lower exchange rate overall is helping the traded sector. Over the past year, growth in credit to businesses has picked up, even as that to households has moderated a little. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.

Indications are that the effects of supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. Dwelling prices have begun to rise again recently. But considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities.

Taking account of the available information, and having eased monetary policy at its May meeting, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time.