Tasmanian-based lender MyState Limited has fired back at the federal government over its criticism of banks not passing on interest rate cuts in full.
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"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," MyState managing director and chief executive Melos Sulicich said at the company's annual meeting in Hobart on Thursday.
His comments followed federal Treasurer Josh Frydenberg criticising banks for not passing on the Reserve Bank's three recent cash rate cuts in full to home loan borrowers and asking competition watchdog the ACCC to investigate.
Mr Sulicich said the Australian economy needed a strong but competitive banking sector.
"We are operating in a low and falling interest rate environment, the likes of which we have never seen before," he said.
"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 to continue to pay depositors positive interest rates for their money or a dividend that recognises investors' cost of capital."
MyState chairman Miles Hampton also had a shot at the government.
He 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," Mr Hampton said.
"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."