Westpac says bank levy will cost it $260m

The big four banks say the new levy will cost them about $1.38 billion per annum

May 22 Australia's No.2 lender Westpac Banking Corp said on Monday a new bank levy would result in additional costs of A$65 million ($48.4 million) in the second half of the financial year ending September.

Based on Westpac balance sheet at the end of March, the 6 basis point levy would apply to about $615 billion of Westpac's liabilities.

It will apply to banks with liabilities of more than A$100 billion and won't impact either regional lenders or foreign banks operating in Australia.

In question time, the Turnbull government confirmed the bank levy would be a tax-deductible expense for the big five banks affected by it, and that the estimated $6.2 billion revenue to be raised was a net figure.

However, the big four - ANZ, Commonwealth Bank and National Australia and Westpac - were not included in this mass downgrade on S&P's assumption that the government would support them if necessary.

In a letter to shareholders, Westpac said it was calling on the government to expand the tax to foreign banks to ensure it isn't "competitively disadvantaged", and to introduce a sunset clause so the tax stops at the end of the current budget cycle in 2021.

But it is unlikely to withdraw support for the law if the inquiry is not extended to the foreign banks. It's also worth noting that although the central bank is technically independent, it can not act as a lender of last resort unless the market has total faith in the government that underwrites it.




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.

"We have expressed serious concerns that the new levy is a poorly designed policy, done without consultation, which impacts not just on the banks but also on our shareholders and customers", says chairman Catherine Livingstone.

That represents a cost of approximately $370 million (or $260 million after tax) per year.

"The exact cost will depend on the final form of the new legislation passed and the composition of Westpac's liabilities", the bank noted in its statement to the ASX.

As the political arguments rolled on, the major banks began to warn their shareholders of the substantial cost of the government's bank levy.

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

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