Who’s to blame for banks not passing on savings?

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October 21 2019
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Following news of an inquiry into mortgage pricing, critics have in turn hit out at the regulators as the ones at fault for the banks’ failure to pass on the entirety of the rate cuts.

In conversation with nestegg, Propertyology managing director Simon Pressley has explained that over-regulation of the financial industry has led to misdirected anger at Australia’s banks.

Misdirected anger

Mr Pressley said the blame for the banks not passing on a rate reduction is misdirected, saying that it should instead be directed to the financial sector regulator having made it too difficult to switch lenders.

“The ridiculous over-engineering of the loan application process has destroyed productivity and enormously diluted the competitive advantages which former generations of regulators fought so hard for Australia to have,” the managing director said.

Comparing refinancing to a “gaol cell”, Mr Pressley expressed the belief that refinancing of loans has become so complex that consumers stick with overpriced mortgages rather than renegotiating terms.

“Once a borrower acquires their loan, the system locks them in. Banks know they can get away with not passing on full rate cuts because APRA has made the refinance process more painful than pulling toenails with a pair of pliers.”

Where the banking industry places the blame

Australian Banking Association chief executive Anna Bligh also weighed in, noting no problem with ADI competition: “Whether you’re looking for a new home loan, a credit card or a transaction account, competition for a customer’s business is fiercer than it has ever been.”

The sector sentiment could be seen to echo this stance, with Westpac CEO Brian Hartzer having gone on the front foot to outline why the bank is not putting profit ahead of customers in its refusal to pass on the full rate cut.

He argued instead that it is protecting its credit rating.

According to the CEO, if the bank’s credit rating falls, the bank will have to pay more for credit, ultimately leading to higher costs for consumers.

“Westpac must also retain its double A rating,” he offered.

“This rating allows the bank to import funding at a more reasonable cost from international investors.”

“To lose it would increase the cost of our wholesale funding, which would inevitably lead to higher interest rates for our borrowers,” Mr Hartzer continued.

The government’s stance

On the other hand, the government has gone after the banks, expressing the opinion that the banks have put profits before customers in their refusal to pass on the full rate reduction.

“The banks have a lot of explaining to do,” were the words of Treasurer Josh Frydenberg, who also said “customers should vote with their feet”.

“Now, some of the smaller lenders have actually passed on this rate cut in [full],” he said.

“People should shop around, get the best deal, but also make their displeasure known to their banks because the rate cuts should be passed on in full, and that would be a good thing for consumers.”

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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