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Australian Banks Charging Customers Increasingly Higher Interest Rates
Australian Banks are charging their customer higher interest rates today than they were seven years ago, despite official lending rates being exactly the same level back then as they are today.
The differential costs a family with a A$300,000 home loan as much $158 a month. The Australian in its report said that the increase in bank funding costs which have resulted from the global financial crisis, accounts for less than half the difference.
At the start of the week, the Reserve Bank of Australia (RBA) Australia’s central bank reduced the official cash rate by 100 basis points. Of the big four domestic Australian banks, only CBA and NAB passed on the full cut in interest rates to their standard variable rate mortgage customers. Whilst Westpac and ANZ both declined to do so, cutting their variable rates by 80 and 83 basis points respectively. Both cited increasing and volatile funding costs as their reason for not doing so.
According to the Australian, back in 2002 when the official cash rate was also 4.25 per cent, the average standard variable interest rate offered by the big four lenders was 6.07 per cent. With 2009 less than three weeks away, or seven years later, the official interest rate once again stands at 4.25 per cent, yet the average standard variable interest rate offered by the big four is 6.82 per cent or 75 basis points higher today than it was back in 2002 despite official interest rate parity.
Lack Of Competition
The Australian, quoted a consultant as saying the main reason behind the difference, was the lack of competition in the Australian banking landscape, and that increased funding costs only accounted for 20 to 30 basis points of the interest rate differential.
Non banking mortgage lenders such as Aussie Home Loans and Wizard have both ceded substantial market share to the traditional big banks “About 90 per cent of loans are now being written by the four majors, and therefore there is much less competitive tension. The net effect of that is they are trying to recover some of the margin pressure that they’ve experienced over the past five years.” the source was quoted as saying.
Consumer advocacy groups, the Government and the Opposition were all united in their stance and increased pressure on the banks to pass the full effects of Tuesday’s central bank rate cut on to their mortgage, credit card and business customers.
Federal Treasurer Wayne Swan, rejected the comments passed by NAB Executive Ahmed Fahour yesterday, that the debate over credit card interest rates was merely a sideshow, and that bank’s mortgage and business lending portfolios were far more significant than their unsecured or credit card lending portfolio.
“I certainly do not agree with the head of the National Australia Bank on those comments,’” the Treasurer said. “The Government’s view is that the banks can pass through in full the recent Reserve Bank official cash rate cut when it comes to mortgage rates, that they should be doing much better when it comes to business loans and they should be doing much better when it comes to credit cards.’”
Opposition Treasury spokeswoman Julie Bishop echoed Mr. Swan’s calls for credit card rate relief, particularly for low-income earners, whilst The Australian Retailers Association lashed out at the banks for stalling economic recovery by not passing on rate cuts to credit card holders.
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3 Responses to “Australian Banks Charging Customers Increasingly Higher Interest Rates”
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About time there was a true Community Bank and I don’t mean the Bullshit Bendigo Bank of which has higher rates than most other banks. I mean a truly not for profit bank run by Directors/Managers whom only get paid normal everyday wages capped to the CPI (Not these grossly excessive Corporate earnings everyone expects to get) Only then we would truly see a fair market Home, Business and Credit Card rates. Possibly a Government run Bank that delivers what they keep preaching ‘Lower Rates’ and then they can pass on the full RBA cut’s without grandstanding. The Governmenyt keeps telling the big banks to pass on the full rates or else ‘or else what’? you won’t get invited to dinner!!!
I am sick of my bank sticking rates up immediately by more than the RBA’s and then waiting forever for them to pass on less than any RBA’s cut.
[...] lack of competition means an increased interest rate for consumers and in fact though the official short term interest rate stands at 4.25 per cent, which is exactly [...]
[...] players are disappearing, leaving a distinct lack of competition in Australian banking, and the results are showing on interest rates. Australian Banks are charging their customer higher interest rates today than they were seven [...]