Fed: Higher rates might not mean higher bank profits - RBA

AAP General News (Australia)
12-08-2003
Fed: Higher rates might not mean higher bank profits - RBA

BRISBANE, Dec 8 AAP - Banks might have higher margins with higher interest rates but
they would not necessarily make more money, Reserve Bank governor Ian Macfarlane said
today.

Mr Macfarlane said higher interest rates had both advantages and disadvantages for
the financial sector.

"Banks' margins widen slightly when interest rates rise, but that doesn't necessarily
mean their profits will rise," he told a parliamentary committee.

"Their profits could fall because their lending activity could fall."

The central bank has hiked interest rates twice in the past two months, in part aimed
at slowing the rapid rise in credit.

Mr Macfarlane said bank shares were sold off when rates first rose because analysts
saw bank profits declining as borrowing retreated from record high levels.

"Banks have been the big winners out of this rapid growth in credit, and if it slows
down then bank profits will not be as high," he said.

The Bank of Queensland said recently every 0.25 percentage point rise added $2 million
to its bottom line.

AAP kmh/apm/br

KEYWORD: RBA BANKS

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