Australian Banks Criticized For Not Passing On Rate Cuts To Businesses

Post by Sharat on January 7, 2009 · Under Australian Economy, banking, interest rates · Comment

Australian lenders have been criticized for adding to the problems already faced by small business from the financial crisis by failing to pass on the full extent of official cuts in interest rates to their business banking products.

Though variable mortgage rate holders have on average received about 280 basis points of the 300 basis points in cuts to official lending rates which have occurred since September, businesses have not been so fortunate receiving a little over half the cuts announced or 163 basis points for business loans according to a report by financial data company Canstar Cannex.

Criticism emerged from the Australian Chamber of Commerce and Industry (ACCI) on Tuesday, when it released its investor confidence survey which showed that business conditions in Australia deteriorated to their worst levels on record. Profitability fell to its lowest level since 2001 and many companies expect to lay of workers this year.

The ACCI’s director of industry policy and economics Greg Evans commenting on the data said “We think it’s time the banks played their part, small businesses have not received the full official rate reduction and that’s impeding economic expansion in Australia.”

The survey’s index on business conditions shows confidence fell in the three months to December. It was down from 57.3 in September to 53.5 — the lowest level since the survey began and 10 points below the five year average of 63.7.

The sales index fell from 54.9 to 51.4, while the profitability index fell from 49.3 to 48.2, its lowest level in more than seven years. The index looking at expected activity also fell to a record low, down to 46.4 from 51.4 in the September quarter.

But the bad news for workers is that the index examining the expected number of full-time employers is now on par with the record lows seen in the first half of 2001. The ACCI expects unemployment to rise to about 5 per cent by the middle of the year.

Despite all the bad news, The ACCI believes that recession is not inevitable, with a strong currency, robust Australian banking system and deep trading links with large economies that continue to grow such as China and India.

Mr. Evans did go on to add that very little of that will benefit unless the banks pass on interest rate cuts to their business customers in full.

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