RBA Says Major Australian Banks Profiting At Expense Of Customers

Post by Sharat on March 12, 2010 · Under Australian Economy, Business News, banking, home loans, interest rates, loans, mortgages · Comment

The Reserve Bank of Australia says that Australia’s major lenders are using higher funding costs as an excuse to profit at the expense of mortgage borrowers and businesses.

The RBA found that the tendency by the majors to increase their interest rates beyond that of official interest rates has meant that they have managed to offset their higher funding costs by at least 25 basis points.

Though the central bank failed to define exactly how much additional profit the major banks have reaped as a result of their rate rises, some analysts estimate it to be in the region of hundreds of millions of dollars.

Last December Westpac controversially increased its standard variable home loan interest rate by 20 basis points higher than the official rise in interest rates.

Citibank estimates that the move allowed Westpac to reap as much as $400 million in additional cash profits.

All of its Big Four rivals have cited higher funding costs as the reason for their decision to increase their rates in excess of the official rise in interest rates.

The central bank released its analysis during its monthly bulletin, which also found that the majors had lower funding costs than their smaller regional rivals.

This reinforces the accusation that the big banks have used their market power to price gouge an additional $20 billion in additional profits.

According to a research paper from the Australia Institute titled A licence to print money: bank profits in Australia – it is claimed that approximately $20 billion of the majors nearly $35 billion in 2009 profits were made as a direct result of the majors monopoly of the payments system.

“With a 90 percent share of the lending market banks are immune from competition which means there’s little to stop them from passing on or increasing costs for customers and growing even more profitable over time,” said David Richardson, a senior researcher at the Australia Institute.

The Australian Bankers Association rejects the claim.

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