While the news is awash with reports of Australians facing mortgage stress and other damage from high interest rates, the big four banks have posted multibillion-dollar profits.
Westpac announced an annual net profit of $7.195 billion – up 26 per cent on the previous year. NAB reported an 8.8 per cent lift in cash profit to $7.7 billion and ANZ had a record full-year cash profit of $7.4 billion – a 14 per cent rise.
The Commonwealth Bank announced a $10.2 billion profit in August, a figure analysts described as ‘uninspiring’.
However good that is for shareholders, one academic says the eye-popping results may indicate banks are taking customers for granted.
University of New South Wales Professor Mark Humphery-Jenner told The New Daily banks were failing to be upfront with their customers by not presenting more favourable rates.
“They need to be careful they aren’t seen to be profiteering,” Prof. Humphery-Jenner said.
“When the government puts you in a position where you’re insulated from competition … then it is incumbent upon those companies to act in an appropriate manner.”
However, University of Melbourne Emeritus Professor Kevin Davis told The Guardian that as long as employment levels remained high, banks would continue to report strong profits.
“It’s more about the potential of an increase in unemployment that I would worry about in terms of the impact on bank profits through loan defaults,” said Prof. Davis, noting that the jobless rate was near historic lows.
The Reserve Bank of Australia (RBA) assesses official interest rates every month. And while the banks are quick to pass on any rate rises to mortgagee customers, they seldom raise interest rates on savings to match the official rate. The RBA last week raised the official rate to 4.35 per cent – a 12-year high and the 13th increase since May 2022.
In reply, for example, the ANZ raised its interest rates on home loan rates across the board by by 0.25 per cent. However, it only raised its interest for savings customers by the full 0.25 per cent for two products.
Rate rise warranted
And there may be more increases to come as RBA governor Michele Bullock said in a statement accompanying last week’s announcement that the rate rise was warranted as inflation was “still too high” and proving more persistent than usual.
So what is the solution for ordinary bank customers?
On a micro level, people with cash savings need to accept that publicly listed companies’ priority isn’t to their customers, it’s to their shareholders. So if they want a better return from their bank, they should consider buying shares.
They should also shop around. There are savings, mortgages and investment products that may be offering better rates. A quick online search or call to a comparison group may reveal some alternative financial institutions that offer much better rates than the big four.
On a macro level, Prof. Humphery-Jenner says Australia needs more competition.
“Compared to the US, where there are thousands of banks and there is competition, in Australia you have the big four banks and people often, by default, go to them.
“It’s not necessarily a fully functional market.”
Do you search for better rates for your savings? Why or why not? Why not share your opinion in the comments section below?