CBA Joins Rivals In Cutting Bank Charges

Post by NeilMc on August 6, 2009 · Under Business News, Company News, banking, mortgages · Comment

Australian banking major and the country’s largest mortgage lender, Commonwealth Bank of Australia (CBA), has followed the lead of rivals National Australia Bank (NAB) and Westpac and cut fees it charges for certain items related to bank accounts and mortgages.

On Wednesday, CBA announced that it too would cut dishonour fees for business and personal bank accounts from the current $35 to $5, and said it would reduce its overdraft fee from $30 to $10. The lender also said it would cut the fee levied on late mortgage payments from $45 to $25.

CBA’s move follows closely on the heels of similar actions taken by rivals NAB and Westpac. Last week NAB announced it would cut its overdraft fee after invoking customer ire, prompting all the major banking groups to undertake fee reviews, with Westpac announcing a similar move at the start of the week, and culminating with CBA’s announcement yesterday.

CBA’s decision now leaves ANZ as the only major banking group not to have made cuts to customer fees.

CBA’s fee change will become effective from October, and the lender said that the change would reduce profits by $135 million and have an impact on revenue of up to $200 million.

CBA chief Ralph Norris said the lender would introduce a number of “safety nets”, which would give customers the option to choose to receive an alert either via SMS or email, if their account balances were in danger of being overdrawn.

The Sydney based lender said it would also introduce a credit card with no annual fee that would be made available only to existing customers, provided the customer spent more than $1000 a year on the card.

Mike Smith, chief executive of ANZ said he wanted a holistic approach to cutting fees at the lender, rather than concentrating exclusively in the areas of personal and business banking.

ANZ is expected to announce its intentions over the next few weeks, measures which Mr. Smith says will add more transparency to its charges. The cost of the proposed changes to ANZ was still under consideration.

“The average person gets a pretty good deal with the banks, but one of the things that really irritates me with fees is that you don’t really know what you are paying for. It’s not very transparent. The fees may be reasonable but you need to know what they are. I think it’s important to get to a position where people understand what they are paying for.” Mr. Smith said.

Mr. Smith added that he would like ANZ’s fee schedule to be one based on charging customers for products rather than transactions.

“When you go to park your car in a carpark, generally there’s a sign outside with the fees so you know what you are paying for. You can’t argue with it if you have seen the charges beforehand. It’s the same for a person who buys a first-class seat on a flight; they expect a certain standard and we should be doing something similar. We should be charging for a service rather than a transaction.” Mr. Smith said.

Fee based income is the fastest growth area of earnings for the major banks and last year between them, they earned more than $1 billion from charging fees to customers. Analysts estimate that fee based income could fall by as much as $370 million for the major banking groups, if the Big Four banks cut their fees.

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