Fattened margins revealed
(19 November 2010 – Australia) New figures have suggested that while Australia’s big four banks have been whining about their margins being squeezed, the opposite may be true.
As political and public outrage mounts over banks interest rate movements above the Reserve Bank’s official cash rate increase, figures released by the Prudential Regulation Authority indicated that the banks' average cost of funding their loans climbed by less than the Reserve Bank cash rate in the year to June.
Australian Institute director Richard Denniss, told the Sydney Morning Herald that ''we have been complaining about the wrong thing".
''Whereas we have been angry about banks not moving in lockstep with the Reserve, we should have been concerned their actual costs weren't even keeping pace with Reserve Bank increases," Mr Denniss highlighted.
The figures indicate that while the Reserve cash rate climbed 1.36 percentage points between June quarters 2009 and 2010, the average rate paid by the big banks to secure funding for loans climbed 0.88 points.
Mr Denniss likened it to making hamburgers, " If meat accounts for a third of your costs and the price of meat goes up 10 percent, you shouldn't be expected to put up the price of the hamburgers by 10 percent".
The Australian Bankers Association confirmed the calculations were correct. But it said they didn't reflect banks' actual cost of funds.
''To be honest we can't work this out,'' said chief executive Steven Munchenberg. ''Performing the same calculation we get the same result, but I know it is not right because if it was we would have been being beaten to a pulp with this by the government and the opposition.''
Australian Institute director Richard Denniss, told the Sydney Morning Herald that ''we have been complaining about the wrong thing".
''Whereas we have been angry about banks not moving in lockstep with the Reserve, we should have been concerned their actual costs weren't even keeping pace with Reserve Bank increases," Mr Denniss highlighted.
The figures indicate that while the Reserve cash rate climbed 1.36 percentage points between June quarters 2009 and 2010, the average rate paid by the big banks to secure funding for loans climbed 0.88 points.
Mr Denniss likened it to making hamburgers, " If meat accounts for a third of your costs and the price of meat goes up 10 percent, you shouldn't be expected to put up the price of the hamburgers by 10 percent".
The Australian Bankers Association confirmed the calculations were correct. But it said they didn't reflect banks' actual cost of funds.
''To be honest we can't work this out,'' said chief executive Steven Munchenberg. ''Performing the same calculation we get the same result, but I know it is not right because if it was we would have been being beaten to a pulp with this by the government and the opposition.''
Subscribe