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.
‘Profiteering’?
“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.
More competition
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?
Also read: Cost increases that hurt you most in the last quarter
Well the question is, do we want a banking system that’s teetering on the brink of bankruptcy? Just think of the consequences of that for our lives. We only need to think back to the various State banks that went bust around the 1980’s does nobody remember the State Bank of Victoria and Tricontinental?
Well the question is, do we want a banking system that’s teetering on the brink of bankruptcy? Just think of the consequences of that for our lives. We only need to think back to the various State banks that went bust around the 1980’s does nobody remember the State Bank of Victoria and Tricontinental?
The best thing people can do is follow the solutions recommended above. In fact for any company you use and you think is profiteering, save your money you usually put on lotto, the TAB, pokies and any other expensive past-time and buy shares in the offending company. You will then change your perspective about profiteering!
People bash banks and the profit they declare but forget that they are not a charity, have high overheads, high risk default loans and bad investments, employ people and need to make money for shareholders of which many of us are indirectly through our superannuation investments.
I wonder whether the economists, government and the RBA take a different perspective concerning the causes and effects on our monetary policy to fight the local inflation rate in our open economy, subject to externally fluctuating prices of energy and manufactured goods, and foreign shareholders of our bank shares.
Firstly, no matter how high the RBA increases the domestic interest rate, our monetary policy can only have a small effect on the consumption of petrol, electricity, and gas, the supply of which is controlled by foreign ownership, and their pricing structure. In other words, small businesses and ordinary households are the victims of this inflation monster. This has our Federal Government worried about implementing fiscal policy to release inflationary pressure on the said victims. At this juncture of transitioning to e-energy, the government has only limited options in fiscal policy to release this pressure.
On the other side of the coin, the RBA raised the interest rate to an extent that the four big Banks riped
I wonder whether the economists, government and the RBA take a different perspective concerning the causes and effects on our monetary policy to fight the local inflation rate in our open economy, subject to externally fluctuating prices of energy and manufactured goods, and foreign shareholders of our bank shares.
Firstly, no matter how high the RBA increases the domestic interest rate, our monetary policy can only have a small effect on the consumption of petrol, electricity, and gas, the supply of which is controlled by foreign ownership, and their pricing structure. In other words, small businesses and ordinary households are the victims of this inflation monster. This has our Federal Government worried about implementing fiscal policy to release inflationary pressure on the said victims. At this juncture of transitioning to e-energy, the government has only limited options in fiscal policy to release this pressure.
On the other side of the coin, the RBA raised the interest rate to the extent that the four big Banks ripped huge profits. Through their distribution of dividends to shareholders, they redistributed our nation’s wealth to the rich shareholders. I wonder how much the government should tax the Big Banks for their huge profits to finance the release of pressure on small businesses and ordinary households. Otherwise, young people can afford to buy a $2.8 million house with their rich parents’ finances, which has been reported by SMH every day. RBA did say that they are watching the housing prices and their effects on inflation. The current scenario does not help at all and has the opposite effect.
You say,” Through their distribution of dividends to shareholders, they redistributed our nation’s wealth to the rich shareholders.”
However, the super accounts of just about every ordinary “little” person would have bank shares so the dividends flow through to everyone – not just “rich shareholders”.
Good on you, if you receive the Bank Dividends through your super. My concern is that this distribution of the nation’s wealth would divide us into those who have and those who have not. For those who have not would be the victims of the high inflation rate. The Government needs to use fiscal policy to seek an avenue to finance the help of those who have not.