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Cost of funds just an excuse

By webmaster 18 November 2010 | 1 minute read

A new report has found the banks’ interest expenses have risen by less than the Reserve Bank’s rate hikes.

According to the Australian Institute report, the major banks have been profiteering by lifting rates above the RBA’s official moves.

Australia’s majors have consistently claimed that their costs are rising by more than the official rate moves.

But senior research fellow at the Institute David Richardson said the banks’ profits have “unambiguously gone up”.

“There is no doubt that these banks are exploiting their market power to gouge excessive profits from their customers,” he said.

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“This year, the big four banks earned pre-tax profit of around $1,300 per annum for every man, woman and child in Australia. The latest round of interest rate rises shows just how insatiable their thirst for profits is.

“Banking in Australia is essentially a rogue market in which a small number of winners take all. There is a clear case for government to take action with a combination of regulation, structural reform and improving competition.”

However, Australian Bankers' Association has strenuously dismissed the report.

The ABA's chief executive Mr Munchenberg said the RBA’s November meeting minutes released yesterday confirmed the costs of funds had in fact risen in the last 12 months.

“The RBA minutes recognise that funding costs have been slowly increasing.  This gradual increase has had a cumulative effect over the past year that is significant. That’s why some banks and other lenders have announced increases on standard variable home loan rates by more than the 25 basis points cash rate increase,” he said.

“Banks have been absorbing these higher average funding costs for nearly a year, but there comes a point when these costs do have to be passed on.”

Cost of funds just an excuse
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