What goes up won't come down unless banks more open about rate decisions

CHOICE says consumers need to see the other side of the coin in claims over funding costs

CHOICE says the big four banks should back up their decisions about home loan rates with evidence, including publishing reasons for any rate changes.

The people’s watchdog says if it’s good enough for the RBA to release the minutes of their board meetings, it’s good enough for the banks who seek to go it alone to allow public scrutiny.

Banking industry figures have spent recent weeks trying to soften up the market ahead of any RBA rate decisions, arguing that rising funding costs have made it harder to pass savings to consumers. 

But CHOICE says these claims should not be taken at face value, especially when funding costs seem to be a one-way street.

“The whole argument about funding costs draws attention away from the fact we have some of the most profitable banks in the world who are very well placed to pass on any savings to their customers,” said CHOICE’s director of campaigns & communications, Christopher Zinn.

“We think Australian consumers have the right to see when costs are increasing or decreasing, and judge whether they are getting a fair deal.”

CHOICE says its research and the latest data on bank profitability released by the RBA raise questions around the banks’ claims. It says clearer disclosure would help the public debate.

The Australia Bankers Association claims funding is increasing, in part because ‘banks have continued to pay high interest rates to depositors, benefitting Australian savers, but adding to the cost of bank funding’. However CHOICE research in 2011 showed that $153 billion is being held in low or no-interest transaction accounts that also charge hundreds of millions of dollars in fees. 

In addition, the latest data from the RBA on bank profitability clearly shows an upward trend in the major banks’ net interest margin.

“The massive amounts in low-to-no-interest deposits has to be the cheapest funding possible and undermines the claim that increasing deposits are the cause of higher mortgage rates,” said Zinn.

“Banks seem to want it both ways: paying next to nothing for deposits in transaction accounts and increasing interest margins on home loans. Consumers need to look closely at what their bank is offering them and question any move to increase mortgage rates at this time.”


Media enquiries:  Christopher Zinn: CHOICE director of campaigns and communications – 0425 296 442

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