Westpac’s rate increase “greedy”

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Westpac is facing harsh criticism in the wake of its decision to slug borrowers with a 0.20 per cent mortgage rate increase – and there’s concerns that other banks will follow suit.

The nation’s second-largest bank (by assets) is being accused of corporate greed, with Opposition Leader Bill Shorten saying that the bank’s decision to increase its rates when the Reserve Bank of Australia (RBA) is doing its best to assist the economy is “incredibly disappointing”.

Westpac responded by saying that the increase will help cover the cost of new capital requirements. However, Treasurer Scott Morrison believes the rise is excessive and well over the amount that he was advised would be enough to cover new regulations set by the Australian Prudential Regulation Authority (APRA) in July this year. The new requirements stated that banks needed to increase the amount of capital they held in relation to their mortgage loans.

Last year, Westpac posted net profits of $8 billion, which was an increase of six per cent on the previous year. Its cash earnings also rose three per cent to $7.82 billion and a further $3.5 billion was raised through discounted share issues to shareholders. All this was being done to raise its capital reserves.

It’s no wonder then that Mr Morrison has accused the bank of gouging its customers.

What’s more worrying for mortgage holders is that there are concerns of other opportunistic banks following in Westpac’s footsteps.

“After the cash rate from the Reserve Bank kept going up … the banks matched it exactly and then when the cash rate was on the way down the banks didn’t match it exactly,” said Labor finance spokesman Tony Burke.

The 0.20 per cent basis point increase to Westpac’s standard variable home loan will mean that borrowers will have to pay an extra $45 a month on an average home loan of $350,000.

What do you think of this? Is Westpac within its rights to increase its mortgage rates, contrary to the intentions of the RBA? Or do you see it as gouging? Would a move such as this encourage you to switch banks?

Read more at The Guardian

Read more at www.sbs.com.au

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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?

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58 Comments

Total Comments: 58
  1. 0
    0

    Wait till the interest rates rise by 2% then you will hear the cry’s of despair.
    Not worth the Press or Government comments, sorry but should had factor in at least 2% rise at these Historical Lows. Borrow else where if really concerned a BEAT UP.

    • 0
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      I agree Chris. A total beat up.
      What Leon avoids is the fact that ALL the banks are going to follow suit and that record low interest rates, whilst good for borrows, has totally distorted our financial system. The reason so many retirees are struggling is the zilch interest rate environment, which also results in reckless spending from citizens and corporations. It will end badly as the world debt is now around $230 trillion. To get your head around that figure 1 trillion is one million lots of a million. Unimaginable sum! And growing.

    • 0
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      The volatility in the debt market is scary.

      We have 0% interest rates in the US but the bond market is showing rising prices.

      You are entirely correct mick and a fair amount of that huge debt is pure junk riding on resource companies that are about to blow up.
      The GFC will look like a picnic when that loss hits and liquidity dries up.

      All those borrowing hundreds of thousands of dollars should have factored rising rates and falling incomes into the equation as it is common knowledge we are 40 years into a neoliberal capitalist experiment being run by a bunch of central bankers. It will get a whole lot sillier before it blows up.

      Many of us were caught out with the high interest rates last time around. I was paying 21% towards the end and was forced to sell a house at a huge 30% discount to get out of the strife I was in.

      When it happens again there will be wailing and disbelief that this can happen.

      Small rises in rates may save a few from making errors in borrowing more than they can afford.

  2. 0
    0

    Banks are lazy greedy institutions and provide little in the way of contribution to Australian economy. They take billions out of the economy and put nothing tangible back. It is no wonder that there is little productive and industrial activity left in the country.

    • 0
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      fordy you may have a point but there are many business owners who would not have been able to grow their businesses without the partnership of a bank.

    • 0
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      I love banks. They give me money to do what I want and when I have money they pay me interest and dividends.

    • 0
      0

      Speaking of which. The WBC distribution of $0.94 is around 6%.

    • 0
      0

      How do you take billions out of the economy? The profits go to superannuation funds and shareholders. Would you prefer to have the Greece situation and not be able to get cash for 2 or 3 weeks. Be crying like a stuck pig them!! Part of the rise is to cover new capital requirements put on by the government who then expect the banks just to wear the extra cost. Remember there are lots of financial institutions in Australia and if you do not like one move to another.

    • 0
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      Banks are businesses. Businesses want to make profit. They are not charities. Over the years many small, local banks and building societies have tried to get into the business but we, the customers, don’t support them apparently and they eventually seem to disappear. If people cannot affrord this miniscule rise then they have borrowed far too much. Sorry, but it seems that many people are just as greedy in their own way as the banks.

  3. 0
    0

    Why Westpac? NAB put theirs up 20 odd basis points a week or two ago and media said nothing.

  4. 0
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    PERHAPS this small increase will have a positive effect on increasing investment interest rates for those of us trying to keep ahead of inflation.

    • 0
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      What Leon’s piece does not mention is that deposit rates have also increased.

    • 0
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      Nope it all to do with profitability to appease their shareholders. If they can borrow more cheaply on the money markets than what it costs for deposits then deposit rates suffer. If you don;t like what you get interest rates then buy the banks for a much better return.

    • 0
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      Yes Eddie. What Leon also does not mention (probably does not understand) is that money needs to be priced accordingly. At current rates retirees do not get a fair return and reckless spending occurs across the spectrum….creating more debt of course. An endless cycle which nobody is going to enjoy when it ends….with results that mums and dads cannot even imagine.

  5. 0
    0

    Last time I listened to Glenn Stevens talking about the official cash rate level I got the impression that the board has now reached a level of monetary policy impotence. I think Shorten is making a political statement only because at these low rates those who have the courage have borrowed already and those who have not are waiting for the RBA to move it’s foot close to the brake pedal. Many developers shelved plans for major projects when we put an incompetent, inexperienced bunch of union hacks in government during 2007, at a time when we needed strong economic leadership. Some of these planned projects are only now getting the dust blown off.

  6. 0
    0

    Gee wouldn’t it be great if we had something like a government owned “Commonwealth” bank, to offer genuine competition and keep rates down.

  7. 0
    0

    So the regulatory authority is concerned at the capital adequacy of the banks and hence ability to withstand pressures of economic downturn and stipulate an increase in reserves. The banks respond by raising equity and increasing prices (interest) to comply with the new rules. Now the pollies cry foul. What would the critics do? Get taxpayers to fund the banks!

    • 0
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      People need to realise that banks lend money on funds they do not have. In effect they ‘create’ money which is not in existence. Here lies the problem: if the value of assets like real estate halved (quite possible!) then borrowers would walk away leaving the keys on the kitchen bench. This has happened before. So then banks are faced with stumping up money they simply do not have. What happens is a bank collapse. Now we are talking serious consequences as the (bank) dominos fall one after the other.
      The solution to the above is to force banks to keep more cash to cover their loans. This is what capital adequacy is about. Has to be a good thing. A pity Leon does not have an understanding of why this is happening.

    • 0
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      People seem to forget that we were paying up to 17.8% interest on loans in the 1980s……things were tight, but we managed OK.

      This is just the beginning….our economy is about to nosedive, due to the fraudulent nature of global economic growth.

      Debt has to be purged from our system….and I am talking about personal debt and our love of credit cards, private debt for the companies who have borrowed unnecessarily and public debt for the State and Federal Govts who insisted on borrowing billions, just to make them look good with “stimulus packages” such as $1000 handouts, the school building program, the housing insulation scheme and such like….just to buy votes and make themselves popular. All in the meantime LYING to us about how good things were!

      Wake up Australia! We are not the “land of opportunity” any more and haven’t been for years. We are in debt up to our ears and now we are going to suffer for it.

      All the warning signs are there……China is lying about it’s economy, it’s gold reserves and the property boom there. They have been buying our iron ore and making consumer goods that we simply don’t need! Cars, whitegoods…you name it! Where is all going to end and who is going to have the money to buy it?

      The US has high unemployment, defaults on home loans and credit cards and the same thing is going to happen here, if it hasn’t already.

      Our Govt is NOT being honest about our unemployment figures.

      2008 was just a hiccup in comparison to this….and I lost my dearest friend to suicide, just because he was playing the sharemarket and lost lots of “play” money.

      As Paul Keating once said “This is the recession we had to have”. and it is going to happen again.

    • 0
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      You have some understanding of the issues aly. Most people do not and go along as if as in the past everything will be ok. I think that this one is different though and I believe that when the world banking system crashes it may be 1920 Germany rather than 2008 GFC.
      Makes you want to have cold one before there is no money to buy anything. Scary. As always most people will choose to not believe. For their sake I hope they are right.

    • 0
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      I do hope you are wrong mick as a deflationary depression is far better than what you are suggesting.

      The price increases for food and water at present do not bode well though.

      The traders are paying $300 a megalitre right now and pricing farmers out of the deals.

      Rome burns and the ALP and NLP play silly games with each other.

  8. 0
    0

    I don’t pretend to understand the finance world, but if you read enough you will start to realise that this rise is in reality quite insignificant. I note some respondents are trotting out the usual rubbish that banks take in money and give Australia nothing back. That sort of uneducated rubbish is more scary than a small rate rise.
    Banks are businesses and need investments which need to be repaid with interest to the investors. No one makes millions on shares in a single bank. For the mum and dad savers there are small profits (because interest on bank lending is low) and for major investors the huge profits come from a wide range of investments alongside their banking ones.
    Banks provide the money for major construction…your local shopping centre and so on. So please, criticise banks for their poor customer service not for being banks

    • 0
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      Reeper you are spot on with that post!
      Labor have always used this politics of envy to create some tribal hatred in their not so bright followers. People like mick parrot people like Wayne Swan without thinking for themselves.

  9. 0
    0

    Thank goodness interest rates are going the right way at last ! However 0.2% is very low increase. On our home loan we paid rates which started at 10% & rose over 20% & still paid it off on time.

    Our banks were very greedy in the past but are better now. They are also very safe – unlike many countries banks – as they are heavily regulated. Without them most couldn’t own houses !

    They get a lot of flack but they are a business. Like every one, they need to make money & pay dividends to share holders & pay taxes. They also pay interest themselves as they borrow from other banks to some extent.

    They add more to the economy than wealthy miners who make money by selling resources that belong to us, get taxpayers subsidies to do it, make millions & pay no tax !

    • 0
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      Don’t hold your breath Supernan. Whilst this is what is needed governments and their buddies in the big end of town are keeping rates down as they fear what will happen if they raise. Damned if you do and damned if you don’t.

  10. 0
    0

    Corporate Greed! There’s a surprise! Create a new National Bank owned by the people, as per the old Commonwealth Bank.

    • 0
      0

      Less about “greed” and more about common sense. Better than creating an environment where banks will collapse (think about Cyprus, Greece and the US after the GFC).

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