Lenders Raise Fixed Interest Rates In Response To Exit Fee Ban
A survey undertaken by The Australian suggests that the big four lenders are jacking up fixed rate mortgages as they seek to mitigate the impact on their bottom line from the Australian government’s ban on exit fees for home loans, whilst at the same time profiting from the increasing number of borrowers who prefer to lock in their interest rates.
According to the analysis, fixed rates are increasing for the first time in twelve months, and the gap between standard variable rates is being bridges.
“The market has shifted its view on interest rates, pushing up the cost of funding term mortgages, and fixed-rate home loans have increased accordingly,” said Glenn Haslam, ANZ general manager of mortgages and deposits.
“There has been an uptick of customers choosing to fix.”
The lenders have blamed the interest rate rises on a shifting yield could, and the assumption that the Australian bank will hold official interest rates steady in the immediate future.
Last year fixed mortgage rates plunged in response to the expectation that the RBA would have to continue cutting interest rates as it sought to provide protection for the Australian economy from the European debt crisis.
At the end of last year, there was a 74 basis point differential between fixed rates and the standard variable rate. That differential has narrowed, with the average standard variable rate of 100 lenders now at 6.87 per cent, whilst the most popular thee year fixed rate standing at 6.35 per cent.
The analysis shows that low fixed rates on offer last year prompted 3 per cent more customers to lock in rates.
One analyst suggests that lenders find the fixed rate loans more attractive to make because of the break fees should borrowers end their mortgage with the lender.
The break fee helps offset the impact of the government decision to ban exit fees.
According to Mr. Smith, fixed rate mortgages experienced a spike in 2011, when borrowers were hit by consecutive rate hikes in the previous year.
“A lot of people jumped into fixed rates last year,” he said.
“There had been a lull because in 2007 a lot of people got burnt by fixing rates then. If you did, and the the RBA cut rates so aggressively, you were locked in to paying nearly 300 basis points above the variable rate.”
Roughly 20 per cent of all Australian mortgages are estimated to be fixed rate. Last week Citibank said that roughly 30 per cent of its mortgage portfolio were fixed rate loans.
RBA To Ban Excessive Credit Card Surcharge
The Reserve Bank of Australia is developing new regulations which will ban companies from imposing excessive charges on their customer’s credit cards.
The RBA is proposing that providers such as Visa or Mastercard limit the amount that businesses are able to charge for transactions that take place on their customer’s credit cards.
Malcolm Edey of the RBA says that that the proposal limiting surcharges was at the final stage of consultation.
According to Dr. Edey, the regulations would restrict the surcharge that businesses can levy on their customers, though it would not necessarily result in a cap on the cost of the transaction. Dr. Edey says the RBA hopes that the new regulation would result in smaller transaction costs for both consumers and businesses.
Providers such as Visa would be able to take action against those business which violate the new regulations and continue to impose excessive surcharges. The regulations have been designed to enable businesses to continue to be able to recoup the cost of transaction.
“In that way I think it strikes a reasonable balance and it should strengthen the incentive for schemes to compete in lowering their fees to merchants,” he said.
“The less a scheme costs to merchants, the lower will be the permissible surcharge.”
The RBA Deputy Governor says there was some evidence which suggests that certain businesses were imposing inappropriate surcharges, which exceeded the cost of transactions.
The same fee was being levied on both low and high cost cards by certain businesses, whilst others simply imposed a fee that was far in excess of the cost of transaction.
“Although these practices do not appear to be widespread, they are of concern from a payments-efficiency point of view because they can distort consumer choices about the payment methods that they use,” Dr Edey said in a speech in Sydney.
“They go against the principle I stated earlier of allowing the efficient flow of price signals to the economic decision-maker.
“It is for these reasons that the (Reserve) Bank reopened consideration of the surcharging standard last year.”
Satisfaction With Big Four Lenders Falls Marginally In February
The results of a new survey conducted by DBM consultants suggests that borrowing plans of SME’s have fallen in direct response to the growing differential between official interest rate, and what is being charged by the major banks.
The survey also suggests that growing dissatisfaction with banking, expressed by all businesses, following a rise in satisfaction which occurred last year.
“Wider lending margins were closely associated with a fall in the number of businesses saying they were looking to take out additional lending products and an increase in the number of businesses seeking to replace existing lending,” DBM managing director Dhruba Gupta said.
“So while the banks’ lending margins have improved, they appear to have come at a cost of fewer businesses looking for new loans and more existing customers looking to replace their current lending.”
The results of the survey come at a time when ANZ led the big four banks in raising its interest rates out of synch with the Australian central bank, which held interest rates steady.
Despite the dissatisfaction, the percentage of SME clients who were considering opening a new account declined to 10.4 per cent in November last year, compared to 14.4 per cent measured in June 2010.
Average satisfaction ratings across all market segments for the big four lenders fell marginally in February.
Choice Urges Mortgage Borrowers To Switch From Big Four Lenders
Choice the consumer, group claims that mortgage borrowers could save as much as $70,000 on their home loan, simply by switching from a major lender.
The consumer watchdog recently released its findings as part of its Move Your Money Campaign, which it argues suggest that there are huge savings on interest charges and fees to be had.
A comparison website recently published data which agrees with the consumer groups findings, and suggest that borrowers and savers could obtain better deals on credit cards and savings accounts by shopping around.
According to calculations, a smaller lender is willing to pay as much as $328 a year more in interest on a deposit of $5000 than the lowest interest rate offered by a major bank.
Credit card borrowers can save as much as $449 in both interest and fees on a $3000 loan by switching the debt from the highest interest rate product offered by a major bank to a smaller lender.
Matt Levey of Choice said that the major lenders dominate the mortgage lending and savings market in a manner that was unhealthy, controlling roughly 80 per cent of the entire market between them.
Mr. Levey says it is time to send the major lenders a message, in response to their record profits and refusal to cut interest rates, whilst cutting jobs.
“It’s time to make them listen, and the best way to do this is to move your money or negotiate with them for a better deal,” Mr. Levey said.
The savings are for a $300,000 mortgage with a 25 year repayment plan, and are calculated for the average standard variable rate offered by big four lenders. The calculations do not include one-off exit fees.
Banks Struggle To Gain Public Trust Over Rate Hikes
Against a rising tide of public anger towards excessive bank profits and pay of executives, bankers are set to address a grilling by the senate over their decision to hike mortgage interest rates, despite the fact that the Australian central bank held rates steady
Whilst welcoming the fresh senate inquiry, the Australian Bankers’ Association expressed fatigue. Steve Munchenberg, chief executive of the ABA said he would support the inquiry and intends to provide evidence if he is asked for a submission.
Mr. Munchenberg said that the banking industry needed to improve its image and to do that, it would have to listen to the community.
He added that Australians failed to trust the explanation given by banks over their decision to hike interest rates in response to higher funding costs.
“We have to do a lot more work to explain why we need the levels of profitability that we do,” he said.
Speaking at an industry function in Brisbane, The ABA chief said the banking sector is struggling to obtain trust from the public over its explanation for why mortgage lending rates had to rise independent of the RBA.
Mr. Munchenberg laid indirect blame on politicians for the hike in mortgage interest rates, arguing that political pressure to follow the RBA rate cycle did not help, and that paradoxically, they result in higher rates for borrowers.
Australia’s major lenders claim the wholesale funding rate on international markets forced them to move their rates out of synch with the central bank for the first time in Australia’s history.
“It is highly ironic that attacks on the industry from politicians could actually increase the cost of money to Australian banks,” he said.
“For most in the community, banks are seen as powerful and greedy.”
Michael Russel, chief executive of Mortgage Choice waded into the debate, again reiterating that the cost of funding was the major reason for lenders to move their rates independent of the Reserve Bank.
“That is the driving force,” he said in Brisbane.
All four major lenders, NAB, Westpac, ANZ and CBA all hiked their standard variable mortgage rates in February, all cited the higher cost of funding.
Macquarie Credit Rating Downgraded By Fitch
Fitch, the global credit ratings agency has downgraded Macquarie Group’s banking arm from A to A-, citing the lenders reliance on wholesale funding markets, and the market orientated nature of its businesses.
Investors however seemed largely unconcerned by the news, with Macquarie shares rising for the fourth consecutive day. The downgrade did not come as a surprise, since the investment banking group had already been placed on review by Fitch in February, and follows downgrades of three of Australia’s four major lenders, including CBA, NAB and Westpac.
All the lenders valued their top credit ratings highly, but were downgraded for the same reason as Macquarie, the excessive reliance on wholesale funding.
Macquarie’s banking division is responsible for the majority of funding for the entire group, and the downgrade is likely to mean that the lender now has to pay marginally more in financing costs for its investment banking operation.
“An uncertain global economic environment and increasing regulation mean that absolute returns from these businesses are likely to be subdued relative to pre-2008 levels in the short to medium term,” Fitch said.
“Also, market-oriented businesses have a more volatile earnings profile than traditional commercial banking businesses.”
Despite the downgrade, Fitch added that Macquarie had aggressively addressed the changing macro conditions, exiting unprofitable businesses, cutting costs and improving efficiency of capital.
Patrick Upfold, group CFO said the new rating was in line with ratings issued by other agencies, adding that Fitch’s decision was not a reflection of any particular developments, but was rather a more global view.
The ratings agency said that Macquarie’s rating now remains stable. The downgrade comes at a time when the lender is raising US$500 million in London, through the issuance of hybrid shares to institutional investors.
Fitch rates the new securities BBB- a rating just above that of junk, suggesting the riskier nature of the paper.
CBA And NAB Experience System Outages
Australian banking major CBAexperienced a major malfunction of its Eftpos and ATM network, which the lender says was resolved by this morning. Despite that claim, retailers were still asking customers to sign for purchases this afternoon, with transactions still failing to reflect in online statements. Rival NAB also experienced problems with one of its IT platforms.
On Wednesday morning CBA released a statement which said the lender was; “Aware customers may have encountered difficulties when using ATMs and Eftpos overnight and earlier this morning. “
The problem with CBA’s platform began on Tuesday night, well in advance of the date changing to the 29th of February, an event that occurs only once every four years, and was initially thought to be the cause of the failure.
Separately, NAB also experienced a failure of its HICAPS system, which the lender operates to process medical payments. That failure was also attributed to the leap year, though not all terminals seemed to be affected. NAB’s system continued to be able to process credit card and Eftpos transactions, which contradict the leap year as being the cause of the failure of its system.
“Due to a software issue, some health care providers using Hicaps terminals may not be able to process health insurance claims or Medicare claims at the moment.” NAB said in a statement.
The lender advised patients who were trying to claim insurance benefits do so through their insurer instead. NAB apologized to its customers and added that it was working to resolve the issue as soon as possible. This is the second time NAB has experienced a system failure for an extended period of time, and the lender has not yet indicated when it expects to have fixed the problem.
CBA took to social networks to apologise to its customers, and posted on both facebook and twitter: “Services were restored about 8.30am. We apologise sincerely for the inconvenience caused.”
ANZ Chief Calls For An End To The Politics Of Banking
Mike Smith, chief executive of Australian banking major ANZ says the Australian economy is not being helped by politics and called for an end to criticism of the banking industry and a focus instead on helping the economy achieve long term growth.
Mr. Smith made his comments following months of intense criticism for politicians regarding rising mortgage interest rates in response to higher costs of funding.
Mr. Smith also expressed dissatisfaction with proposed new banking regulations that will be implemented worldwide, arguing that such stringent requirements come at the worst time for the global economy.
“I have to be blunt here and say politics isn’t helping, we need to bring more focus to the long-term opportunities and challenges facing Australia, rather than short-term point scoring,” M, Smith said.
ANZ reported a 5.7 per cent increase in cash profit for the December quarter, which stood at $1.48 billion.
Mr. Smith maintained a cautious outlook for the global economy saying that the global financial crisis had entered a “second and more protracted phase”
Mr. Smith suggested that the poor international economic climate has resulted in both Australian consumers and business displaying cautious behavior.
Additionally, Mr. Smith said that proposed new banking regulations would have the effect of permanently increasing funding costs.
“I think when looking at changes like Basel 3, whilst these reforms were well-intentioned, some of the changes are coming at the worst possible time for the world economy. I really do worry about the consequences for growth and stability, especially in Europe,” he said.
The Australian Prudential Regulation Authority, the banking regulator says that the new rules are primarily focused towards making lenders safer, aiming to shore up investor confidence in financial institutions.
Suncorp May Send As Many As 2000 Jobs Overseas
The government of Queensland is calling for Suncorp to support local jobs as speculation mounts that the banking and insurance company is looking to send as many as 2000 jobs overseas.
Suncorp has already shipped 150 positions abroad, and is considering expanding its partnership with international vendors. The company says it is still undecided on the move.
Andrew Fraser, the Australian Treasurer has personally taken up the matter, sending a letter to Patrick Snowball, Suncorp chief executive at the end of 2011.
“Suncorp is a great Queensland company with a well-regarded local reputation for supporting Queensland jobs. I’ve made the Government’s view clear in writing and in person. We believe Suncorp should support Queensland jobs given the support Queensland has given them as a company.” Mr. Fraser said.
In its response to the letter from Mr. Fraser, Suncorp fails to even mention the possibility that as many as 2000 jobs may be shipped overseas.
The company did acknowledge that jobs would be lost “over the medium term as a result of our plan to simplify the business”.
Over the last five years, the Finance Sector Union estimates that industry wide, as many as 6,000 jobs have been sent overseas, of which approximately 200 were sent by Suncorp.
Most of the major lenders have signaled their intent to cut thousands of jobs in Australia.
Bill Shorten, Minister for Finance said such plans were risky. According to Mr. Shorten, the country has one of the best banking systems in the world, largely the product of a well trained and intelligent workforce.
“Offshoring is a policy with many risks. For an industry that needs to remain customer-focused in an ever more competitive environment, the banking sector needs to achieve more than just cost cutting. Banks will need to enhance the customer experience to survive. This will require highly trained staff.” he said.
Monash University’s Greg Bamber, a professor in the department of management said the strong dollar was another reason for the rising trend of sending jobs overseas.
“The higher the Australian dollar goes the more advantageous it appears for Australian companies to offshore. But some companies say they can find the IT skills in Bangalore easier than in Australia.” He said.
ANZ Survey Shows Number Of Jobs Ads Increased
A new survey by Australian banking major ANZ suggest that the number of job advertisements jumped by their largest monthly rate since February 2010.
According to the ANZ job advertisement survey, the number of job advertisements placed in major newspapers and on the internet increased by 6.0 per cent in January. For the year ending January the growth was more moderate, posting a 0.7 per cent rise.
Ivan Colhoun, who runs Economics and Property research for the lender said that the trend could be attributed to increased activity in the mining areas of the Northern Territory and Queensland.
“The awaited significant acceleration in mining investment is now beginning to boost labour demand in these states. We remain mindful of the usual problem of significant volatility in the monthly data over the December-January holiday period. In spite of this caution, the pick-up in advertising in the resource states is of sufficient magnitude to outweigh any of these seasonal concerns.” Mr. Colhoun said.
According to Mr. Colhoun, the lender is predicting that despite the increase in job advertisements, the unemployment rate would continue its upward trajectory in December, rising to 5.5 per cent from 5.2 per cent, citing that the number of jobs had not kept pace with a rising population and labour force.
“This month’s job ads data, if sustained in coming months, suggests any rise in unemployment should remain very modest.”
The lender say it does not expect the Australian central bank to cut interest rates when the board meets on Monday, but is predicting rates to ease when the board meets the following month in March.
“Inflation is well-contained and the economy can afford to grow a little faster, in particular, we will be less likely to see further interest rate cuts.” he said.
The survey results indicate that the number of job advertisements posted on the internet rose 6.4 per cent in January, up 1.4 per cent from the previous year. In contrast, job ads placed in newspapers fell by 2.6 per cent and were a whopping 11.5 per cent lower than the previous year.