Australia’s Big Four Banks Amongst The World’s Most Profitable Lenders
Australia’s Big Four lenders have bested their international rivals by reporting the best shareholder returns amongst banks from developed countries during the five year period between 2004 and September 2009.
Commonwealth Bank of Australia (CBA) can now boast that it is the world’s 14th largest lender by market value, with its ranking having jumped the most amongst the Big Four, by 13 places.
Westpac is ranked 15th in the list up 3 places, whilst NAB ranks at 23 in the list, up 8 places, and ANZ is ranked 26th in the list, up 12 places, according to a study on the global banking industry by management consultants Boston Consulting.
The consulting firm calculated that the entire banking industry’s market capitalisation had increased two fold from its low of US$3.1 trillion in February this year, to US$6.2 trillion by the end of September.
The global banking industry’s peak market capitalisation prior to the banking crisis was US$9.3 trillion in October 2007 and the industry has recovered more than half the value it has lost since then.
Australian lenders had the best long term total shareholder return, producing 11.2 per cent annually from 2004 to 2009.
Australia was ahead of Canada which produced 10.2 per cent and Spain with 4.9 per cent.
The UK returned negative 2.1 per cent, whilst the US returned negative 3.9 per cent.
Australia’s Big Four outperformed their international peers for a few reasons, most notably because they weathered the financial storm with relatively few of their assets (just 14 per cent) in trading and investment asset classes.
The amount of assets Australian banks committed to these classes were barely one-third the exposure their US and European rivals had committed to tradeable credit instruments linked to subprime assets.
Another reason the Big Four performed well, was that Australian regulators were far more rigorous, which meant that the Big Four were far less prone to moral hazard, with Australian mortgages being full recourse to the borrower’s assets.
Australia has also had to import capital for domestic lending, forcing Australian lenders to raise funding on international wholesale markets, which has meant there was very little investment of surplus retail deposits in tradeable assets.
Having managed to avoid the worst of the financial crisis, the Big Four could soon start writing back some of their surplus provisions, with one analyst suggesting that between them, the Big Four could write back up to $8 billion in bad debt provisions, providing scope for special dividends.
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Wayne Swan Urges Banks To Follow NAB’s Lead And Scrap Fees
Federal Treasurer Wayne Swan has said that other Australian banks should follow NAB’s lead and lower fees and charges further.
“I think it lays down the gauntlet to all of the other banks to reduce their fees and charges, so they’ve set a good example here. Let’s see some of the others follow.” Mr. Swan told reporters in Brisbane on Thursday.
Mr. Swan encouraged consumers to shop around.
“There’s no doubt there’s a far better deal on fees and charges out there from one bank today,” he said.
On Thursday, NAB announced the abolition of account service fees on two of its everyday bank accounts, and said it would also cease charging $25 to those customers who exceeded their credit card limit.
The cost of the new measures to NAB is $110 million.
In 2008 Australian households incurred $415 million in penalty fees on credit cards alone, leading consumer advocacy group Choice estimates.
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Australians Shift From Credit Cards Into Debit Cards
Australians continue the trend of shifting away from using credit cards into debit cards whilst making new purchases. Over all credit card debt however is expected to increase as optimism over the economic recovery increases.
According to data released by the Reserve Bank of Australia, the value of purchases and cash advances made on charge and credit cards declined by 1.57 per cent in August from a month earlier.
Savanth Sebastian, an economist with Commsec noted however a continuing shift in credit card use into debit cards, which he believes foreshadows an eventual increase in credit card growth in the coming months.
“This August data does highlight consumers shunning any sort of debt and instead using cash and debit cards. It is a trend that will remain in place, but you will see credit card transactions at least rise. It seems the reliance on credit has really waned and the focus for consumers is trying to manage their household finances.” Mr. Sebastian said.
The RBA data shows that purchase made using debit cards increased by 13.8 per cent in August, with an average credit balance of $3,131, up marginally by 0.1 per cent from a year earlier.
The positive increase in credit card balances was the first such increase in five months, with Mr. Sebastian suggesting a gradual improvement following a rebound in consumer confidence.
“You are not going to see credit card growth explode. It is more likely to wallow around these levels until we move into 2010 and consumers can start looking to the future and start to forget about the global financial crisis. The reliance will be on debit cards, EFTPOS and cash but over the next year there will be a marginal shift to credit cards.” Mr. Sebastian said.
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NAB Abolishes Fees On Everyday Accounts
Australian banking major National Australia Bank (NAB), has announced the abolishment of monthly account service fees for two of its everyday banking accounts effective from January next year. The lender will also scrap the $25 fee for exceeding the limit of its credit cards.
NAB said it will end account service fees for both its Classic and e-Banking personal transaction accounts from January 22nd 2010. The fees cost $4 and $5 respectively. NAB said it would also cease levying monthly service and transaction fees for 10 other unspecified transaction and savings accounts.
NAB will also reduce charges for credit card customers who exceed their credit limit and for late payment by $25 to $5 for all credit cards effective December 4th.
The move will affect more than 860,000 NAB customers. Lisa Gray NAB’s personal banking group executive said that the fee cut came with no strings attached.
“Today’s decision is final. There are no disclaimers and we won’t be recouping these fees anywhere else,” she said in a statement on Thursday.
“There is no asterisk, no disclaimers and no rule requiring customers to make a minimum monthly deposit,” NAB said.
The move will cost NAB approximately $110 million in lost revenue from the charges, and follows NAB’s decision to also scrap its $30 overdrawn account fee for personal accounts which occurred earlier in the year.
Despite the abolishment of charges, NAB said it would continue charging fees for use of ATM’s.
NAB’s direct charge for non-NAB customers is $1.50 for a cash withdrawal or advance, and 50 cents for a balance enquiry.
All of Australia’s major lenders have made reductions or cut exception fees on personal accounts, with some changes yet to take effect.
Ms. Gray said the decision by NAB to abolish its overdrawn fees had resulted in the lender gaining new customers, and gave it a competitive advantage over rivals.
NAB is also reviewing fees for all business customers and will announce its decision this year, Ms. Gray added.
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Australians Spend Less on Charge And Credit Cards In August
Australians spent less on credit and charge cards in the month of August, with the total value of transactions declining by 1.53 per cent, according to new data released by the Reserve Bank of Australia.
$18.865 billion was spent by Australians on charge and credit cards in August, down from $19.159 billion in the previous month. Credit card repayments in August also fell by 4.57 per cent according to the central bank’s data.
Total credit and charge card balances outstanding rose by 0.8 per cent to $44.937 billion, from $44.568 billion. Balances accruing interest fell to $32.482 billion in August, from $32.750 billion the previous month.
The total value of credit and charge card purchases declined by 1.49 per cent, whilst the value of cash advances on charge and credit cards also decreased by 2.65 per cent.
There were 3.916 million fewer purchases made with charge and credit cards in August compared with July, whilst the number of charge and credit card accounts increased by 3000.
Total credit and charge card balances outstanding had risen by 2.06 per cent over the year to August. Total credit card repayments rose by 4.26 per cent over the year.
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NAB & St George Internet Banking Facilities Hit By Glitch
Customers of National Australia Bank (NAB) had problems with the lenders online banking facility on Tuesday, when some customers were unable to view their account transactions or conduct transfers. Customers of rival lender St. George also had issues with the bank’s internet banking facility on Tuesday.
”Due to an error with one of NAB’s systems some customers have experienced delays in payments being processed overnight. This primarily relates to payments coming from other banks to business banking customers and some online transactions made last night.” NAB said through a spokesperson.
NAB said that the issue had been resolved quickly and that payments were now being processed.
The problem is said to have affected customers nationally, though NAB gave a rather cryptic explanation saying the problem was a “technical transaction issue.”
”NAB is actively working with customers to resolve any issues that may have resulted from this processing delay,” NAB said.
The lender pledged to reimburse any fees or charges customers face, that resulted from the incident.
On the same day St. George also reported an unspecified problem with its internet banking facility which resulted in a slowing of its system.
A St George spokesperson said that the lenders system had been ”partially degraded” on Tuesday morning, resulting in the response time of the system taking longer than normal.
St George said that the problem had no effect on customer volume and added that the system ”is in the process of being restored to normal.”
The bank’s IT department is still investigating the root cause of the problem.
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ANZ To Introduce Dedicate Retirement Bankers Across All Branches
Australian banking major ANZ is training up its staff to enable it to offer specialist retirement bankers stationed across all its 820 nationwide branches by the middle of 2010.
The policy is as a result of the successful implementation of a pilot project last year in branches located along the eastern seaboard, which saw the introduction of retirement bankers in over 220 branches.
The specialists are available to offer free advice and tailored banking products for people planning or already in retirement.
Louis Hawke, ANZ’s managing director for retail distribution, said that less people were retiring in the traditional manner.
“Today’s retirees have different priorities, such as further education, travel, caring for grandchildren, starting businesses or working part-time,” Mr. Hawke said.
Mr. Hawke said, with an average retirement age 59 and the average life expectancy reaching 81, the average person has 20 years of retirement to fund.
ANZ believes that retirement is much more than just superannuation, and that many people had to change the way they bank in order to prepare for it or to draw from their savings.
The introduction of the policy of having dedicated retirement bankers comes after research by the lender on people older than 50 showing a majority of account holders had not reviewed their status since their accounts were first opened.
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Value of Australian Personal Loans Tops $7 Billion In August
Demand for personal loans not including mortgages surpassed the $7 billion mark during the month of August for the first time in 18 months, underlining a further increase in consumer confidence over the Australian economy.
The Australian Bureau of Statistics released the August data on Monday, showing that personal loans, which include fixed and revolving credit facilities increased by 4.1 per cent in August compared with July and stood at $7.18 billion.
There was a parallel increase in commercial lending as well, which rose by 5.6 per cent to $28.51 billion in August. Commercial lending however remains at about half the peak level of $50.18 billion that was set in January 2008.
Despite the increase in personal and commercial lending, lease finance declined by 9.4 per cent to $398 million whilst home loans for owner occupied accommodation fell by 1.7 per cent to $16.54 billion in August.
The data release was somewhat overshadowed by last week’s move by the Reserve Bank of Australia, which hiked official interest rates by 25 basis points to 3.25 per cent, a move that was replicated by retail lenders.
Wednesday’s Westpac-Melbourne Institute consumer sentiment survey will gauge the response to the rate increase, the first in 19 months.
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One In Six Australians Have Problems Repaying Debt
One in six Australians is having problems with repayment of debt aside from the additional burden of increasing interest rates, the result of a new survey has found.
The survey conducted by market intelligence firm Veda Advantage, also suggests that more than 20 per cent of Australians applying for additional credit during the next six months will have problems paying off their debts.
25 per cent of those who are having trouble meeting their obligations, now carry more debt than they did a year ago.
Russell Evans, general manager Veda Advantage, said that though the majority of Australian families were using credit in a responsible manner, a small but sizeable minority are having problems.
“Under current laws, this group can be invisible until it’s too late,” Mr. Evans said.
Mr. Evans said that though the Federal Government should be lauded for enacting responsible lending laws, financial institutions that provide credit were operating in the dark.
“A simple change to the credit reporting laws will allow credit providers to check a borrower’s current credit commitments and repayment history before additional credit is granted. This would protect families from taking on more debt at a time when they need assistance to help them out of debt.” Mr. Evans said.
Mr. Evans says he believes that the Federal Government’s responsible lending legislation will be ratified by the Australian parliament later this month, but added that the new regulations will still be inadequate without creditor access to more transparent information.
“Lenders will struggle to identify families and individuals who are in financial difficulty.” He said
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Wayne Swan Warns Banks Not To Raise Interest Rates In Excess Of RBA Rate Hike
Federal Treasurer Wayne Swan, has warned Australia’s Big Four banking groups that Australians would get ”quite angry” if they raised their mortgage rates in excess of interest rate hikes initiated by the Reserve Bank of Australia.
Mr. Swan made the comments whilst announcing measures to improve the ability of smaller regional lenders to offer mortgages and compete more effectively in mortgage lending with the Big Four, who between them control over 86 per cent of the market for new mortgages.
Currently the Big Four banking groups have raised their standard variable mortgage rates by 25 basis points, in line with the 25 basis point interest rate hike by the Reserve Bank of Australia last week.
Last week however, Westpac subsidiary RAMS increased its mortgage rate by 35 basis points, according to a report published in the Brisbane Times.
”I can’t see any justification for the four majors to further increase their rates over and above any decision that is taken by the Reserve Bank,” Mr. Swan said in Brisbane on Sunday.
Mr. Swan also announced that the Federal Government would begin investing in residential mortgage backed securities (RMBS) issued by smaller regional lenders, in a bid to boost their competitiveness and increase the level of competition that exists in mortgage lending.
RMBS are effectively mortgages which are packaged up and resold to investors. The Government undertaking to buy such securities issued by smaller, regional lenders means that a large buyer exists in the market, creating a floor price for such securities and providing liquidity to a market that has effectively been shut for the last 12 months.
The government has committed to buying $8 billion of such securities issued by smaller regional banks, and follows similar undertakings which took place in September and October last year, and is in addition to the sovereign guarantee which was also imposed to ensure lenders had access to funding.
”Competition puts downward pressure on rates and it’s very important that we have a competitive mortgage market,” Mr. Swan said.