The financial services royal commission made 76 recommendations. Some have been implemented, some will be. So the sector is a lot cleaner, one would assume. Yet Treasurer Jim Chalmers has ordered another inquiry into bank operations just as they post or forecast record profits.
As the cash rate climbs steadily skywards, are savers reaping the benefits on deposits? Or just the banks?
Commonwealth Bank has reported a record half-year cash profit of $5.15 billion, up 9 per cent, and a bumper reporting period is expected for all the big banks. UBS research forecasts they will post record combined profits of more than $33.5 billion this financial year – up from $28.5 billion last financial year.
The record for the big four’s annual earnings is $31 billion.
The issue, as Dr Chalmers sees it, is that the banks are quick to pass on the Reserve Bank’s cash rate increases to borrowers, but not to savers. And that’s why he has ordered the Australian Competition and Consumer Commission (ACCC) to investigate how banks set interest rates for savers and home loan borrowers.
Your money is very valuable to banks, with the CBA reporting that customer deposits account for about 75 per cent of its funding needs.
CBA does note it is facing increased competition for deposit accounts and that major banks will need to raise their rates to entice savers, thus reducing their margins.
Do interest rates on deposits pass the ‘pub test’ given that banks are raking in record profits while so many Australians are doing it tough?
Should banks be obliged to tell customers – just like energy companies – if they could be getting a better deal? I have been an ANZ customer for decades and did not know about ANZ Plus until a rare visit to a branch and a chance conversation. It is currently paying 4 per cent with no conditions.
The latest inquiry seeks to consider how authorised deposit-taking institutions “set interest rates for savers, including differences in interest rate increases between bank deposits and home loans”.
Mortgagebusiness says the review will look at matters including:
- the rates of interest paid on amounts deposited or held in retail deposit products
- the terms and conditions for the supply of retail deposit products to consumers
- supplier strategies in relation to retail deposit products, including supplier approaches to setting interest rates on retail deposit products
- supplier decisions relating to terms and conditions on which retail deposit products are supplied in light of changes in the Reserve Bank of Australia’s target for the cash rate
- the nature and extent of price and non-price competition in the supply of retail deposit products
- the use of retail deposit products as a source of funding for suppliers’ provision of credit.
The ACCC will consult with financial regulators, including the Reserve Bank of Australia, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC).
It says that “in most cases, banks have fully passed through the cash rate target increases to their home loan interest rates”, but not necessarily to savers. And increases in interest rates on deposit products have “typically been smaller and less consistent” and often have conditions attached.
ACCC chair Gina Cass-Gottlieb says: “We welcome this direction from the government to shine a light on the retail deposit market and rate-setting decisions of banks.
“We are aware that deposit and savings accounts are an important source of income for many Australians, typically supplementing their income from employment, superannuation and the pension.”
She said the inquiry would also examine the benefits of shopping around and switching, and any barriers that may be stopping consumers from seeking a better return on their savings.
The ACCC has been directed to report to the Treasurer by 1 December 2023.
Should we have to have yet another inquiry? Should there be a mechanism that makes banks pass on interest rate rises for savers within a specified timeframe? Do you regularly shop around? Why not share your thoughts or suggestions in the comments section below?
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Blind Freddy can do the sums! $31 BILLION would go a helluva long way towards helping struggling home owners, and NOT via deposit rates – via home loan interest! THE problem is that banks set their (collective) interest rates much higher than the cash rate. So when Uncle Phil sets an increase of a few points of a percent, the banks’ profits soar. Why should privately run banks be imune to the need to slow down growth? We all have to pull our weight, except banks.
Why??
ALL banks need regulation. And NOW!
The responsibility of (virtually) any organization is to maximise the return to shareholders and this is what the banks, the same as any other successful organisation, are doing. Why not “knock” the real estate organisation “Domain” for, as I read this morning, making over $15 million in the first 6 months of the year?
I agree that the banks, generally, are very quick to increase rates on lending on slow to increase them on savings but this has, as has been said a number of times recently, given us one of the strongest banking sectors in the world.
The answer to this “problem” might be to legislate lending margins, but this could be the thin edge of the wedge; and didn’t we have a (defeated) referendum many years ago about giving governments control over prices?
The worst thing that happened was, arguably, the privatisation of The Commonwealth Bank, if that were still in public hands it could do the governments bidding by offering more competitive rates than any of its competitors.
Perhaps it is time for a new Peoples Bank!
I have been asking myself that exact question, Term Dep rates haven gone down since Nov. I would have thought it would go up, certainly another way to slow spending as investors lock in rates.