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Westpac delivers positive outlook for Aussie economy

Westpac Banking Corporation (ASX: WBC) held its annual general meeting in Melbourne on Friday, where the company’s chairman, Lindsay Maxsted, expressed his confidence regarding the outlook for the economy but also urged the government to reassess the various regulations being imposed on Australia’s banks.

Maxsted highlighted the important role that each of the major banks play in the community and stated that the additional regulations that have been introduced have already created additional costs and complexity to the system. He said: “Given the very important role banks play in the community, it will be very important to fully assess these changes and their appropriateness to our market” – particularly at a time where the economy is emerging from a “period of below trend growth.”

One such additional requirement for the banks is that they will be required to hold more capital in reserve in case of another economic downturn. The Australian Prudential Regulation Authority’s pending rules will impact Westpac, along with Commonwealth Bank (ASX: CBA), ANZ (ASX: ANZ), NAB (ASX: NAB) and Macquarie Group (ASX: MQG), whereby they could be expected to hold a combined $14 billion in extra capital as a safeguard against an economic downturn.

The government is preparing a major inquiry into the financial system, which will mark the first major investigation of the system since the Wallis review in 1997.

A positive outlook

Despite the additional regulations, Westpac maintains a positive view of the Australian economy, recognising a pickup in business and consumer confidence that can largely be attributed to the Coalition’s federal election victory as well as the easing of the Australian dollar (which is currently valued at just over US90c).

Whilst there have been signs of a pickup in business investment again, Westpac is well-positioned to benefit from an increase in demand for loans as the economy continues to recover. Following on from a $7.1 billion profit for 2013, the bank’s CEO, Gail Kelly, said the bank had “good momentum” going into 2014 and that productivity and efficiency were key focus areas going forward.

Foolish takeaway

Shares in the banks have performed strongly over the last 18 months or so and have delivered investors with enormous returns, however, they also became overpriced in the process. Although they have fallen in recent weeks and are sitting at more attractive valuations, there are still better alternatives available that stand a greater chance of delivering market-beating returns in the long-run.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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