Australian Banks Minting Fees From Consumers

Post by Sharat on January 1, 2009 · Under Australian Economy, Featured Articles, banking, interest rates · Comment

The Australian Prudential Regulatory Authority (APRA) published new research last week showing that in the year to June financial institutions accrued income from fees and commissions totalling A$ 22.6 billion. The amount represented at least a ten per cent increase in fee and commission based income from the previous year which amounted to A$ 20.48 billion.

The increase comes at the same time as banks for most of the last year raising interest rates on their lending portfolio citing the global financial crisis as the reason for an increase in funding costs which had to be passed on to customers. Banks moved independently of the Reserve Bank of Australia, and their increase in interest rates which occurred back in January came on top of two upward movements in official interest rates in February and March.

The figures published by APRA did not show the impact of the 300 basis points in cuts ordered by the Reserve Bank in the last four months. Some banks have failed to pass on the full extent of the cuts to their customers, with ANZ and Westpac keeping some of the reduction from the 100-basis point cut by the RBA in December as part of their profit margins.

The level of account fees paid by Australian customers has reached a record high, with at least $1.4 billion spent in the June quarter on transaction and lending activity.

Analysts say the increase in fees came as customers placed more money with the major banks. Despite the increase in fees, Australians have turned into fiscal conservatives, choosing to hoard cash out of the volatile financial markets. Before the recent interest rate cuts, banks were offering deposit rates above 8 per cent in a bid to reduce their reliance on volatile funding markets. However, as official rates have been cut, deposit rates have been slashed.

In the three months to June, Australians had $1.41 trillion in their bank accounts compared with $1.15 trillion at the same time last year. The amount in normal transaction accounts, which offer zero interest rates, was $596.6billion but there was strong growth in term deposits. The money in those accounts rose from $323.5billion to $412.5billion, which analysts said was a result of financial market volatility. The increased fee slug from the banks came as the major institutions became wealthier, with their profit margins jumping 3 points to 29 per cent.

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