Are Australia's banks being greedy?

Are Australia's banks being greedy?
Are Australia's banks being greedy?

GUEST OBSERVER

Less than half an hour after the Reserve Bank of Australia cut the official cash rate to the new low of 1.5 percent, some of the nation’s lenders announced their interest rate movements. 

I am disappointed to see some lenders choose shareholder profits over customer outcomes. 

The RBA’s decision to cut the cash rate in August didn’t come as a surprise. 

Against a backdrop of historically low inflation, softening employment and an Australian dollar stubbornly determined to stay above $0.75 USD, it was only a matter of time before we saw the RBA cut the cash rate.

That said, at a time when the economy could do with the lift that a cut to the cash rate would provide, it was deeply disappointing to hear some of the nation’s largest and most profitable lending institutions announce that only 10 or 13 of the 25 basis point reduction would be passed on to their mortgage customers. 

It would be very easy to let this partial rate cut pass under a veil of rhetoric around the cost of wholesale funds, and requirements to hold increased amounts of capital against mortgages.

The reality is however, if all lending institutions chose an equally profit focused approach and held back this proportion of the 25 basis point cut, then this equates to something like $2 billion dollars taken out of the pockets of Australian mortgage holders and placed onto the bottom line of institutions that are already generating tens of billions of dollars in profits every year. 

It is also disappointing to see that whilst some lenders are quick in announcing these partial rate reductions, it takes them a little longer to implement these cuts at all - it can sometimes be weeks and/or months. 

There is no reason why a lending institution cannot pass on rate reductions to their customers as soon as they are announced. By choosing to delay their approved rate cuts, these lenders are further adding to their swelling bottom lines at the expense of their customers. 

Interestingly, while lenders take weeks to pass on any rate cuts to their home loan customers, I wonder how long it takes for the same institutions to reduce the amount of interest they will pay on savings and transaction accounts.

There is still a high degree of market volatility. Unemployment has edged slightly higher over the last month, consumer confidence is down, and housing affordability remains a critical issue for many.

Knowing this, I would like to see more of our lenders act in the interests of their customers.

John Flavell is chief executive officer Mortgage Choice.

Tags: 
Interest Rates Reserve Bank

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