Published: Mon, May 22, 2017
Finance | By Laverne Griffith

Westpac says bank levy will cost it $260ma year

Westpac says bank levy will cost it $260ma year

Commonwealth Bank and NAB have joined Westpac in warning shareholders about the Coalition's $6.2bn bank levy, saying it will cost them hundreds of millions of dollars each after tax this year.

Westpac's preliminary estimate is the 0.06 percent levy will apply to A$615 billion of its liabilities, costing A$370 million a year, or A$260 million after tax, the Sydney-based bank said in a stock exchange filing on Monday.

The Prime Minister said the levy would apply to foreign banks if they reached the $100 billion liability threshold, but "one of the foreign banks' Australian subsidiaries come to that level".

The government announced a six basis-point levy on the deposits of the country's five biggest banks in its annual budget last week. "No company can simply "absorb" a new tax, so consideration is being given to how we will manage this significant impost".

In a letter to shareholders, CBA said it was deeply concerned the tax would undermine its ability to deliver for shareholders.

He said that still held and no foreign bank operating in Australia "is a major bank in Australia".

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On the basis of the above estimates, it would result in a new cost in our Second Half 2017 of approximately $65 million after tax. The two are the first of Australia's largest lenders to give an estimate of the impact of the levy, which the government forecasts will raise A$6.2 billion over the next four years.

But it is unlikely to withdraw support for the law if the inquiry is not extended to the foreign banks. You know, I know and the government knows that a tax can not be "absorbed".

In effect then ever since the GFC Australia's banks have been able to borrow at better rates thanks to the government's liquidity backstop, while also lending out more than $1 trillion at super profitable returns with bad debts at record lows. That translates to an annualized cost of AUD260 million.

"The exact cost will depend on the final form of the new legislation passed and the composition of Westpac's liabilities", it says. Westpac reported an unaudited cash profit of A$7.82 billion in the year ended September 30.

And that means the tax will strip 8 cents a share, or about 4.3% of dividends, based on Westpac's 2016 full year dividends of 188 cents.

Worldwide rivals would not be subject to the levy, although HSBC is subject to the equivalent United Kingdom scheme.

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