Borrow
Treasurer challenges banks over rate cuts
Treasurer Josh Frydenberg has challenged the banks on interest rates, calling for the competition watchdog to look into mortgage prices and obstacles customers face in switching banks.
Treasurer challenges banks over rate cuts
Treasurer Josh Frydenberg has challenged the banks on interest rates, calling for the competition watchdog to look into mortgage prices and obstacles customers face in switching banks.
Since June, the Reserve Bank of Australia has passed on three rate reductions, with the big four banks failing to pass on the full reduction to their customers.
The Treasurer outlined that the large banks have passed on just 57 basis points out of a total reduction of 75 basis points on average.
The average Australian with a $400,000 mortgage is $519 worse off per year with the banks only passing on part of the interest rate cuts, Mr Frydenberg said.
“If the big banks had passed on the recent rate cuts in full, a family with a $400,000 mortgage would be paying around $2,200 a year less in interest payments. This compares to the $1,680 they are saving that they are currently getting from the 57 basis point rate cut.”
How much are the banks saving?
Mr Frydenberg suggested that by not passing on the full rate cuts, the big four banks have “boosted their bottom line by around $570 million”.
As the Productivity Commission observed last year, “the consistently high returns of Australia’s largest financial institutions are over and above many other sectors in the economy and in excess of banks in most other developed countries post-GFC”.
“Nobody begrudges a profitable business; indeed, we want more businesses to be so. However, the funding costs of the banks have ‘declined across the board’ and are at ‘historical lows’, according to the Reserve Bank of Australia,” the Treasurer continued.
This has led the RBA to say that the rate cuts should be fully passed on.
“The fact that the big banks are ignoring the RBA is of concern,” Mr Frydenberg said.
Home loan pricing inquiry
Following the Treasurer’s directions to the ACCC, an interim report is to be provided to the Treasurer by 31 March 2020 and a final report by 30 September 2020.
Mr Frydenberg outlined the inquiry’s goals in a statement as follows:
- Investigating the prices charged for residential mortgages across the entire market, including by major banks, smaller banks and non-bank lenders
- Considering how banks make pricing decisions, including passing on movements in the official cash rate
- Examining differences in the prices paid by new and existing customers
- Examining differences between the reference interest rates published by suppliers and the interest rates paid by customers
- Investigating barriers that may prevent consumers from switching lenders
Banks respond
In response to the ACCC’s inquiry, CEO of the Australian Banking Association Anna Bligh indicated “the first priority of Australia’s banks is the implementation of the royal commission”.
“Australia’s banks stand ready to assist the ACCC in this inquiry. Banks are no stranger to public scrutiny and look forward to the opportunity to cast more light on mortgage pricing and the many important factors that influence the setting of interest rates,” she said.
The CEO of ANZ, Shayne Elliott, has also welcomed the new inquiry.
“The inquiry is a good opportunity to provide facts in what is a complex space, and we hope it will provide the public with renewed confidence in the way their home loans are priced,” he said.
“Despite intense competition, there is cynicism in the broader community about interest rates for home loans. We know we have not done a good job in explaining our position and we will be working hard to ensure this process delivers results.”
About the author
About the author
Banking
APAC’s banking sector expects to pay a high price on digital transformation
Investments in big data, blockchain and machine learning are helping close the gap, but the track record remains mixed when it comes to digital transformation among APAC banks. ...Read more
Banking
COVID-19 has cemented the era of digital banking, but trust in it falls short
As life goes digital, banks are still missing the mark when it comes to consumer trust. ...Read more
Banking
Hardship assistance stats reveal the compounding costs of a locked-down August
Australia’s banking industry says that financial hardship assistance tripled in August. ...Read more
Banking
How to tell if you have too many bank accounts
It’s easy to open a new bank account, but hard to know if you have too many. ...Read more
Banking
Neobanks v big banks: Who delivers faster transactions?
Neobanks are leading the way when it comes to transaction speeds. ...Read more
Banking
Digital banking boom catalysed by COVID-19
A recent report from FIS has shown that Australians are rapidly moving towards digital transactions, with almost 30 per cent said to have engaged in a new banking relationship with a financial institu...Read more
Banking
ABA praises payments system review, citing ‘unprecedented changes’
The banking industry says that the federal government’s review of Australia’s payments systems couldn’t come at a better time. ...Read more
Banking
Aussies in need of financial help prefer social media to their own bank
Social media might not have the best reputation for dispensing financial advice, but it’s still more popular among Australians looking for said advice than most banks. ...Read more
What to expect as the end of lockdown looms? Will the Stage 2 tax cuts boost your tax return? Where should investors be looking as the economy reopens?
Listen now
Could property prices inflate by another 20%? What’s happening in recent dividend announcements? Did your fund fail the YFYS test?
Listen now
What does the NSW regional permit mean for property investors? Who really wins from the BHP-Woodside merger?
Listen now
The sea and tree-change norm; Square’s acquisition of Afterpay; Why you should think twice before turning to TikTok for advice
Listen now
Banking
APAC’s banking sector expects to pay a high price on digital transformation
Investments in big data, blockchain and machine learning are helping close the gap, but the track record remains mixed when it comes to digital transformation among APAC banks. ...Read more
Banking
COVID-19 has cemented the era of digital banking, but trust in it falls short
As life goes digital, banks are still missing the mark when it comes to consumer trust. ...Read more
Banking
Hardship assistance stats reveal the compounding costs of a locked-down August
Australia’s banking industry says that financial hardship assistance tripled in August. ...Read more
Banking
How to tell if you have too many bank accounts
It’s easy to open a new bank account, but hard to know if you have too many. ...Read more
Banking
Neobanks v big banks: Who delivers faster transactions?
Neobanks are leading the way when it comes to transaction speeds. ...Read more
Banking
Digital banking boom catalysed by COVID-19
A recent report from FIS has shown that Australians are rapidly moving towards digital transactions, with almost 30 per cent said to have engaged in a new banking relationship with a financial institu...Read more
Banking
ABA praises payments system review, citing ‘unprecedented changes’
The banking industry says that the federal government’s review of Australia’s payments systems couldn’t come at a better time. ...Read more
Banking
Aussies in need of financial help prefer social media to their own bank
Social media might not have the best reputation for dispensing financial advice, but it’s still more popular among Australians looking for said advice than most banks. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
