Banks’ priorities questioned by former RBA governor
(05 March 2013 – Australia) The big four Australian banks have been slammed by former Reserve Bank of Australia (RBA) governor Bernie Fraser, who believes they have room to cut mortgage rates, but won’t because they have put shareholders’ interests before customers interests.
While lenders argued that they were striking the right balance among serving investors, savers and borrowers, when it came to mortgages, Fraser said, the big four were putting their profits first.
Fraser questioned the degree of ''real'' competition in the sector, saying the banks were earning much higher profits than other sectors and than their peers overseas.
''It's a question of the relative priority they attach to their shareholders and their customers. That's been the case right through the recent period when they haven't always passed on all the RBA moves,'' Fraser said.
''They've had scope then, they have scope now, to [move downwards on interest rates] independently of the Reserve Bank. They've got room in terms of profitability; it's a question of their priorities, really.''
Home-loan customers of the big four have received an average rate cut of 0.93 percentage points in the past year, although the Reserve Bank made a 1.25 percentage-point cut in the cash rate in that time, and these pricing decisions were a key reason for bank earnings growth.
The Chief Executive of the Australian Bankers' Association (ABA), Steven Munchenberg, said it was conceivable that banks would eventually cut rates independently of the Reserve if funding markets continued to improve.
''It's a competitive market, demand for mortgages is low at the moment and that puts additional competitive pressure on the banks,'' Munchenberg said.
Fraser questioned the degree of ''real'' competition in the sector, saying the banks were earning much higher profits than other sectors and than their peers overseas.
''It's a question of the relative priority they attach to their shareholders and their customers. That's been the case right through the recent period when they haven't always passed on all the RBA moves,'' Fraser said.
''They've had scope then, they have scope now, to [move downwards on interest rates] independently of the Reserve Bank. They've got room in terms of profitability; it's a question of their priorities, really.''
Home-loan customers of the big four have received an average rate cut of 0.93 percentage points in the past year, although the Reserve Bank made a 1.25 percentage-point cut in the cash rate in that time, and these pricing decisions were a key reason for bank earnings growth.
The Chief Executive of the Australian Bankers' Association (ABA), Steven Munchenberg, said it was conceivable that banks would eventually cut rates independently of the Reserve if funding markets continued to improve.
''It's a competitive market, demand for mortgages is low at the moment and that puts additional competitive pressure on the banks,'' Munchenberg said.
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