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Bankers Association Defends Banks Decision Not To Pass On Rate Cuts
An Australian banking lobby has suggested that the nation’s banks should have the freedom to increase interest rates on loans made and hold on to official cuts in interest rate so that profits can be boosted as they face an economy which has slowed down.
The Australian Bankers Association and industry group will probably not get a positive reception to its proposal, after Australian banks that refused to pass on last week’s cut in interest rates came in for criticism from politicians and the general public.
Australian banks especially the Big Four remain profitable especially when they are compared to rivals in Europe and the US. Australian banks have greatly benefited from the Federal deposit guarantee and Sovereign guarantee on wholesale international credit and money markets.
The larger banks have increased market share in mortgage and corporate lending as non bank finance companies exit and international banks hurt by the banking crisis retreat to their own domestic markets.
Critics argue that in light of taxpayer assistance and greater pricing power, Australian banks should be passing on all cuts in official interest rates to their customers, and suggestions to the contrary are being treated with scorn.
The Bankers Association said in its statement that recent reports of lenders profiteering on mortgages were not true and the association highlighted bank interest margins which it said “remain at extremely low levels”. The Association reckons that low margins risks the health of the financial sector.
“An important issue that needs to be publicly debated is whether bank interest margins are currently too low and, if so, how high should they go. In other words, by strengthening a bank’s balance sheets, a bank is effectively taking out insurance so they can continue to operate normally in tough times. The social dislocation caused in the US, UK and Europe from having weak banks has highlighted the critical role that banks play in providing economic and social security,” the ABA said in a statement.
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