Commerce Bank

Muhummad Yunus has already produced one great breakthrough. He transformed the concept of aid by pioneering micro-lending, tiny loans as small as $20 to poor villagers, and has lifted many millions out of poverty as a result. He won the 2006 Nobel Peace Prize in recognition.

Now he is pressing for a second. This time he’s looking to transform nothing less than capitalism itself. Not in any destructive way: “I am not asking that we sacrifice part of capitalism,” Yunus said during a visit to Australia last week. “I am asking that we add another part.”

And that is? Its essence, I think. Yunus wants to give capitalism a soul.

That’s not what he calls it. He talks about something he calls the “social business”. It’s a business in every sense, but with two differences – it’s set up to address a social problem, and its investors get back their initial capital but no more. Earnings are reinvested in the business.

It’s not a charity. It’s not an NGO. Charities and NGOs spend half their time and energy raising funds just to keep running.

The social business starts with all the subscribed capital it should need. And it’s not a Trojan horse for government subsidies. The social business must be self-sustaining. It’s not just a concept. His Grameen group has launched four and he was in Australia to urge many more. So far, his social businesses have all been joint ventures with major corporations. Grameen joined with the French food multinational Danone to found Grameen-Danone in 2006, selling high-nutrition yoghurt to poor kids in Bangladesh for about 10¢ a serve.

Similarly, Grameen-Adidas sells shoes for $1 as a way of preventing all manner of foot disease in Bangladesh. Grameen-Veolia sells affordable drinking water, and BSF-Grameen sells cheap impregnated mosquito nets to prevent malaria.

“This is just the beginning,” says Yunus. “Whatever the problem is, you can create a social business to solve it. You have a choice – if there is a problem, you can grumble about it, or you can complain to the government to do something about it, or you can start a social business and deal with it.”

As Yunus wrote in his book Creating a World Without Poverty: “It is tempting to simply dump our world’s social problems into the lap of government and say ‘here, fix this.’ But if this approach were effective, the problems would have been solved long ago.”

Need to create jobs? Want to develop more renewable energy? You can design a social business to do something about it, says Yunus.

“I have just been in Japan where everyone is talking about the problem of suicides, 100 a day. Here everyone talks about the problem of the indigenous people’s life expectancy. Well, you can create a social business to solve it.”

But why would investors put money into a venture that promises to return no more money than they started with?

Because conventional corporations are an outgrowth of only one aspect of the human being, he argues: “The part they appeal to is selfishness. But humans also have a selfless part, and social business is an expression of that part. The two only make sense together.

“I can make my mark in the world, not just money. At the end of my life, has it been worth living? At the moment, you spend your life stacking up money and goodbye. And that’s it?”

Yunus, dubbed the “banker to the poor” for his micro-lending breakthrough, believes the social business brings material help to the poor countries but also spiritual purpose to the rich.

At the global level, Yunus challenges the single-purpose corporation-led globalisation. There are entire sections of the global economy “that ignore the poor, writing off half the world’s population”, he argues in his book. “Instead, businesses in these sectors focus on selling luxury items to people who don’t need them, because that’s where the biggest profits are.

“I believe in free markets as sources of inspiration and freedom for all, not as architects of decadence for a small elite.”

But while Yunus encourages companies to discover their souls, he doesn’t think that the future of the social business depends on corporate goodwill alone: “Anybody can start a social business. You don’t need a mega corporation. Some retired people have lots of skill and experience and many of them can create a social business.”

Dr Yunus demands to know how parents in the developed countries expect to inspire their children: “In the rich countries, young people wonder what the purpose is. Their parents have made money, the houses are there, the cars are there, all manner of gadgets are there – ’so what should I do with my life?’

“You might be a big CEO … But at the moment you sit down to breakfast with your 17-year-old daughter or your 21-year-old son and you have hardly anything to talk to each other about.

“But the moment you start to talk about starting a social business, the moment you ask what social problem you’re going to solve – then, then you are talking about a new world, and you suddenly have something to talk to each other about. Young people are really inspired by this idea.”

That’s certainly true in Australia, according to Cheryl Kernot, the former Australian Democrats leader who these days teaches social entrepreneurship at four business schools across Australia. “All the courses are full, and it’s the students who are driving it,” she says.

Australia already has a nascent social business sector. Prominent is Social Ventures Australia, headed by Michael Traill. He cites the standout example of ABC Goodstart, the new company formed to take over part of the failed ABC Learning childcare business. It will have an annual turnover of $600 million from 678 centres, but it’s designed not to make money but to provide affordable, quality childcare.

And there are others but, overall, Traill describes the size of the genuine social business sector in Australia as “bugger all”, with just a few tens of millions of dollars in funding. And vast potential.

Dr Yunus says that modern capitalism “has squeezed out the spiritual part of ourselves”. The social business is his mechanism to make room to bring it back.

Peter Hartcher is the international editor.

Hundreds of Suncorp staff have been receiving incorrect paychecks / File

SUNCORP has suffered a hiccup to its internal restructuring program after a new payroll system failed to deliver accurate paychecks to hundreds of personal insurance staff.

In an internal memo seen by The Courier-Mail, Suncorp’s personal insurance head Mark Milliner apologises for the inconvenience and being “slow to communicate about the impact”.

Problems were the “unexpected result” of launching a new single payroll system four weeks ago for nearly 14,000.

A Suncorp spokesman said that only 280 people had problems.

Some problems were to be expected with any major project, he said. Most had involved incorrect payments, although some people did not get paid. Problems stemmed from “non-standard” working arrangements and late or incorrect paperwork.

The “Our People Space” payroll project was highlighted at Suncorp’s recent half-year results. Chief executive Patrick Snowball said it had been completed on February 1.

It comes as staff handle claims for recent wild Victorian storms.

Suncorp is yet to unveil its final bill but some analysts expect it to reach the $200 million reinsurance trigger.

The Greens have called for an end to $2 ATM transaction fees / File  AAP

THE Australian Greens want to ban major banks from charging $2 fees for non-customers to withdraw cash from their ATMs.

The party will propose amendments to the trade practice laws to stop major banks charging for Automatic Teller Machine use.

But it won’t advocate the fee ban for credit unions, building societies or independent ATM operators, such as corner shops and clubs.

Greens leader Bob Brown says the multi-billion dollar major banks don’t need the extra annual $680 million generated from inflated ATM fees.

“Australians spend around $1000 on bank fees (annually), 20 per cent more than in the UK where ATM fees don’t exist,” he said.

The $2 fee doesn’t reflect the real cost of processing an ATM transactions, he said.

“The Reserve Bank estimated it was about 50 cents in 2000, which is likely to be even lower now.”

Credit card interest rates are on the rise / File – Karen Collier, Herald Sun

MILLIONS of credit card customers will be whacked with another interest rate rise amid fears the global financial crisis is being used as an excuse to rort consumers.

The Commonwealth Bank and Westpac will slug card holders an extra .25 per cent from next week, in line with the Reserve Bank’s rise in official rates.

Major rivals are expected to quickly follow despite pleas for a reprieve for households battling to pay off bills.

InfoChoice chief Shaun Cornelius said customers across Australia were being charged an extra $1.2 billion a year because of a blowout between the cost of paying on plastic and the official cash rate since the financial crisis.

Those with no-frills cards have suffered most from the refusal of banks and other providers to fully pass on official cuts, only to jump on the rate rise bandwagon once the RBA moves up.

Mr Cornelius said the widening margins were costing customers an extra $110 a year on balances of $3000. Banks yesterday hit back, arguing credit cards were a far riskier form of lending than home loans, and that they still faced rising funding costs.

Westpac spokesman David Lording said credit card rates were more dependent on international conditions.

But Mr Cornelius said big banks were running out of excuses given improving economic conditions and ballooning profits, saying: “Bad debts are reducing and it’s becoming cheaper for the banks to borrow money. This seems to be a case of what goes up doesn’t go down.”

The InfoChoice study shows customers with low-rate credit cards were charged an average 12.75 per cent in January, 9 per cent above the Reserve Bank rate.

PETER MARTIN ECONOMICS CORRESPONDENT

MORTGAGE holders can breathe a guarded sigh of relief after the first official rate rise of the year. Each of the lenders that has responded has passed on no more than the Reserve Bank’s 0.25 percentage point increase.

But each has also complained about ”cost pressures” and hinted it would not be able to continue to hold the line. 

Calculated on the average interest rate of the four major banks before yesterday’s increase.

After imposing an outsized increase of 0.37 of a percentage point increase when the Reserve last lifted rates in December, the Commonwealth Bank this time kept its increase to 0.25 of a percentage point but warned it ”continues to experience increases in wholesale funding costs”.

The ANZ, which pushed up rates 0.35 points last time , fell in line with the Reserve Bank but warned it was ”continuing to absorb additional funding costs” to balance ”very real commercial pressures with the interests of our customers and the broader community’s interest in the economic recovery”.

St George, owned by Westpac which in December led the pack with a 0.45 point increase, said it would only push up rates 0.25 points to take ”a responsible approach to managing interest rates and funding cost pressures”.

Even the National Australia Bank, which was the only one last time to hold its increase to 0.25 points, said this time it would need to examine the ”cost of providing funds” before deciding.

Within minutes of the Reserve’s announcement, the Treasurer, Wayne Swan, sent a message to the banks that there was ”absolutely no justification whatsoever for any increase over and above the official cash rate increase”.

”If we look at the net interest margins for the major banks, they have improved to pre-crisis levels,” he told a Parliament House press conference. ”I have made my views very clear about what Westpac did last time – it was not justified and they thoroughly deserved the backlash they subsequently suffered.”

The latest increases make ANZ the most expensive bank with a standard variable mortgage rate of 6.91 per cent, and NAB the cheapest with a rate of just 6.74 per cent if it does no more than pass on the official increase. If Westpac passes on the increase in full, it will lead the pack with a standard variable rate of 7.01 per cent, and be the first bank to push its mortgage rate above 7 per cent.

Mr Swan said rates were still at ”1970s lows”. ”I think families and businesses understand that rates can’t stay at emergency levels forever, although for someone with a mortgage, it’s tough stumping up an extra $50 a month.”

The governor of the Reserve Bank, Glenn Stevens, described the rise as ”a further step” in the process of returning rates to average levels now that economic growth was likely ”close to trend”.

He has previously stated he expects two to four such rises this year.

The increase will add about $47 to the monthly cost of servicing a $300,000 mortgage, and $63 to a $400,000 mortgage.

Meanwhile, the Bureau of Agricultural and Resource Economics has forecast a 15 per cent increase in mineral and agricultural commodity exports, reaping $186.8 billion in 2010-11.

The drive in commodities exports comes on the back of surging demand from China and India for iron ore and coal.

with Tom Arup

INQUIRIES for 100 per cent home loans have surged 250 per cent since the Federal Government’s more generous first home owners grant ceased at the end of last year.

But mortgage broker Loan Market says these potential borrowers are likely be unsuccessful and will need to show they can save for a deposit.

Loan Market chief operating officer Dean Rushton says there is still a huge amount of demand from people wanting to enter the housing market despite the end of the government’s expanded grant.

But those looking for a 100 per cent loan will find it difficult.

“Tighter lending restrictions which require genuine savings contributions of around five per cent towards the property purchase means most are unlikely to get past first base,” Mr Ruston said.

“The major lenders have no appetite for this type of lending and there is little room to move for applicants who do not fit the box.”

He said early last year banks reduced their maximum loan to valuation ratios (LVRs) to as low as 85 per cent in response to the global financial crisis, making it much more difficult for first-time buyers.

Buyers had been able to use the boosted First Home Owners Grant as a contribution to their deposit but this had become more difficult since the concession returned to its original level of $7000 in January.

Mr Rushton said family equity options, where parents or another immediate family member can help with loan servicing and security support, were still available to help first home buyers entering the market.

“Unfortunately, a lot of people have lost the knack of saving money, which makes it difficult if you want to find the finance to get into the residential property market at the moment,” he said.

“The situation is unlikely to change in the near future.”

AAP

David and Libby Koch - News Limited newspapers

BANK fees quietly and insidiously plunder your savings, often without your knowledge.

Australians on average lose $1000 a year to bank fees and it grows about 8 per cent a year. Often we pay those fees because of our own laziness.

We don’t know about you, but we’d rather keep that $1000 for ourselves than help the bank make another record profit. Change your banking habits, cut those bank fees and enjoy the rewards.

The sooner you get cracking on this issue the better.

Assess your banking arrangements

The first step is probably the hardest and that’s understanding your banking and credit card habits. With a day-to-day account, how many transactions do you make, are they electronic, do you need a cheque book or are you happy with internet banking?

The key is to choose the accounts which suit your habits at the lowest cost. Often you can find appropriate products within your current bank so the first step should be your branch’s information section.

Explain your situation to the customer service person and see what they can offer. If it’s not much, start shopping around other banks.

The same with a credit card. If you never seem to pay off the balance on the due date, choose a card with a low interest rate and no interest-free days. If you regularly pay the balance off on time, interest-free days are an advantage.

Make sure you check out the deals offered by your financial institution. Many of them offer discounted fees for pensioners, students, a range of professions and even members of sports associations.

If you have a couple of products with your bank, such as a credit card, home loan or managed investment, you are an important customer.

Ask where they can cut your fees to keep you happy.

Some banks also offer their shareholders lower fees on home loans.

Only use your bank’s ATMs to avoid costs

Plan ahead and visit one of your bank’s ATMs for free before you run out of cash.

New rules mean we have a much better idea of how much we are charged to use another bank’s ATM.

From now on when you use an ATM that’s not your bank’s, a message will come up on the screen telling you how much you will be charged by the ATM’s owner.

This should be around $2 at an independent ATM or a rival lender’s.

On top of that $2, your bank may also charge you a so-called “foreign” fee for using a different ATM. This fee varies from bank to bank.

It’s important to note this fee is per transaction. Just say you want to withdraw cash and check your balance at an ATM that doesn’t belong to your bank, you could be charged up to $2.50 for each action $5 in total.

If there are only “foreign” ATMs around, withdraw a larger amount and make it last longer. A $2 fee on a $100 withdrawal is a 2 per cent slug, but on a $500 withdrawal it’s just 0.4 per cent.

An alternative to this is to withdraw small amounts fee-free via Eftpos when you’re out shopping.

Don’t overdraw

Some lenders charge up to $50 every time you don’t have enough cash in your account to cover a cheque or direct debit payment.

Overdrawing your account may seem a better option than not paying your rent or electricity bill, but the penalties are high.

Get organised and don’t ever put yourself in that position.

If you are hit with a $50 overdrawn fee, complain to the bank and mutter about it being illegal under contract law to make a profit on these types of penalties. British consumers had a big win over the banks on this issue.

Our banks don’t want it tested here, and our experience is that they’ll cut the penalty if you complain.

Consolidate accounts

With some accounts charging regular fees of up to $10 a month, it makes sense to consolidate your accounts.

There’s also the extra withdrawal fees, Eftpos fees and other transaction charges.

If you have several transaction accounts, find out who gives the best deal, transfer your money and close the rest. The same goes for credit cards.

Read the fine print on loans

Research all fees before taking out a new loan. Is there an application fee? What’s the penalty if you make late repayments? Do they charge a monthly administration fee?

Keep track of the fees because some lenders have been sneakily increasing annual mortgage fees.

Avoid your branch

Suburban branches cost a lot to run, so banks charge for the privilege of using them.

Some banks make you pay up to $5 for withdrawing money over the counter and up to $2.50 for depositing money at a branch. Internet banking is the cheapest way to make transactions.

ANZ chief executive Mike Smith on the roof of company’s headquarters in Victoria. Picture: Jon Hargest Source: Herald Sun

ANZ has increased its underlying profit after tax for the four months to January by 16 per cent to $1.6 billion on higher earnings, wider margins and lower bad debts.

Income growth was about 8 per cent and cost growth was 7 per cent on further investment in the business, especially the institutional and Asian divisions, the bank said.

The company’s margins increased 14 basis points, excluding the markets division, compared with the second half of fiscal 2009.

ANZ chief executive Mike Smith said the outlook for Australia, New Zealand and Asia was now more positive than a year ago.

“The improved conditions are reflected in a more positive outlook for provisions,” Mr Smith said.

“There are, however, good reasons for caution about the outlook at this early stage of the year.

“We are already seeing a sovereign debt crisis in Europe and there is likely to be further volatility as the global financial crisis continues to work its way through the system.”

The provision charge for the full year was expected to be modestly higher than that implied by the four month total of $670 million. Fiscal year to date provisions were down 35 per cent on the prior year average.

ANZ, the Australian bank with the biggest presence in the Asia Pacific, said lending growth grew slightly, with increases in mortgages and credit cards offset by lower demand from corporate and institutional clients.

Deposits grew 2.5 per cent, driven by the increase in Australian retail and Asia Pacific institional deposits, offset by a decline in New Zealand.

“The Australian Retail and Commercial businesses are delivering good results. Asia Pacific Europe and Americas (APEA) is continuing to grow while a key focus in 2010 is integrating the business we acquired in Asia from RBS,” Mr Smith said.

“The New Zealand economy is stabilising, holding out the prospect of improved business performance over the next year or two.”

The bank said consumer asset quality was holding up well with the total provision coverage ratio remaining steady at 2.04 per cent.

ANZ said it had raised just over 60 per cent, or $15.2 billion, of its expected term funding requirements with an average maturity of five years.

The bank said funding costs remained high on a historical basis with the most significant increase coming from deposits.

The banks have been pushing up interest rates on deposit products to attract savings to fund lending.

ANZ said its pro forma Tier One ratio was 10.4 per cent with a core ratio of about 8.3 per cent, making the bank’s capital ratio the highest amongst the big four.

The integration of recent takeovers ING, RBS and Landmark were on track.

Mr Smith said global economic growth was likely to be slower now than in the decade leading up to the financial crisis.

“Despite recent steps to temper growth in China, Asia is expected to remain the world’s best performing region with growth of 7.7 per cent (excluding Japan) which confirms our confidence in the super regional strategy,” Mr Smith said.

ANZ is aiming to have 20 per cent of its earnings coming from Asia by 2012.

AAP

PETER MARTIN

The Reserve Bank has produced the first public estimate of the number of times it expects to raise interest rates in the coming months.

Its governor, Glenn Stevens, told the Parliament’s economics committee yesterday he expects to do it between two and four more times.

Declaring the financial crisis over, and telling the committee it had only ever been a global crisis for six to eight weeks, Mr Stevens said the cash rate had to move away from its ”emergency settings” and increase by 0.5 to 1 percentage points so that consumer and business rates would return to their long-term average, ”which I think is the appropriate place to be”.

Another two to four rises of 0.25 points would add a further $95 to $190 to the monthly cost of servicing a $300,000 mortgage, but would, importantly, leave repayments several hundred dollars below where they were before the crisis began.

The future of rates beyond that would depend on the bank’s assessment of wage and inflationary pressures and the institutions with which borrowers had their accounts.

”We have really had 3½ rate moves so far, or if you are a customer of Westpac, four,” the governor told the committee.

Mr Stevens was relaxed about government debt, saying it was so low that on one reading of proposed new international banking standards Australia did not have enough government debt to sell the banks the safe securities they would need.

Asked to respond to a claim by the Coalition frontbencher Barnaby Joyce that Australia was at risk of defaulting on government debt, he said there were ”few things less likely than Australia defaulting”.

Reminded that Senator Joyce was the shadow finance minister, he said he had ”yet to meet a finance minister who has ever mused any possibility about debt default of his own country”.

ERIC JOHNSTON

A MEETING of the AMP board this month mapped out the options for the wealth giant if, as widely expected, National Australia Bank emerged with AXA Asia Pacific.

One of these is a defence strategy aimed at ensuring AMP remains the so-called ”fifth pillar” of the nation’s financial services market, should a big-four bank begin circling.

The logical poison pill in any takeover attempt would be for AMP to try to turn the game on its head and make a play for a regional bank. Such a move would result in AMP becoming too large for a big-four bank to digest, both in terms of pricing and likely competition hurdles.

The aim of the banks over the past decade has been to diversify into wealth management, so it should not be too much of a stretch for a wealth manager to buy into a mid-sized bank.

Among the most obvious targets for AMP would be Bank of Queensland, given the regional lender’s willingness to enter into a partnership. And at the same time, a deal is affordable and its share registry is largely wide open.

Other candidates include the banking arm of Suncorp Metway, although its new chief executive, Patrick Snowball, has said he is keen to retain the business, which is largely focused on the Queensland market. Bendigo Bank, while attractive with a national footprint, is regarded as less likely, given cultural differences.

AMP is no stranger to lending and transaction accounts, having operated a small banking business for the past two decades. The chief executive of AMP, Craig Dunn, has talked up a greater strategic focus on its banking business to position itself a alternative to the big four lenders.

Of the eight non-executive directors on AMP’s board, three, including the chairman, Peter Mason, and director Paul Fegan, come from a banking background. When it comes to AMP, ANZ is widely regarded as being the best placed to make a takeover offer for the wealth giant.

Any deal would transform ANZ into a dominant player in the financial services market, but it would come at a cost.

On Axiome Equities calculations, ANZ would have to pay about $16.5 billion for AMP for the acquisition to be mildly dilutive, but this would mostly be financed by a monster $10 billion capital raising.