Don’t believe what the banks tell you

The big four banks have failed to keep pace with the RBA's lowered cash rate

Don’t believe what the banks tell you

Over the last 16 months, the Reserve Bank of Australia (RBA) has continued to lower the cash rate, with the rate now at 3 per cent – 1.75 percentage points below what it was in November 2011. However, the big four banks have failed to keep pace, quoting ‘high funding costs’ as the reason.

A former central banker in India, and now a professor of banking and finance at the University of Canberra, Professor Saythe has poured cold water on claims by the banks that high funding costs are the reason they are holding back on rate-cuts. The three main sources of bank funding – deposits, long-term debt and short-term debt, have actually become cheaper over recent years, despite what the banks are claiming.

Banks have, in general, passed on just 1.36 of the 1.75 percentage points reduction in the cash rate, pocketing the rest. During this time the banks have also cut the rate of interest paid on savings, but not by as much as the RBA’s cash rate reduction. Since 2008 the bank interest paid on savings has reduced by 3.7 per cent, with the RBA cash rate falling by 4.25 per cent. So while savers may not have been hit as hard as borrowers, the banks have still profited as the interest paid is less than what the banks charge overall.

The banks are now making more money from mortgages than ever before, according to a report from UBS Investment Research.  The report stated that while the major banks are currently in a purple patch, they risked government intervention if they did not start cutting their mortgage rates outside the RBA cycle.

“The majors continue to make record profits and at the same time harp on about high funding costs to justify their higher lending rates,” Professor Sathye said. Of the sharemarket profit currently being enjoyed by Australian banks he said that it “is coming out of the pocket of somebody… and that somebody is the Australian borrower.”

Read the full story at 

Opinion: Telling us what we already know

Hands up anyone who believed the bleating of the big four banks that funding costs were the reason they didn’t reduce mortgage rates at the same level as the RBA cash rate? No, neither did I. But what will it take for someone to force the banks to come clean and do what’s fair for Australian borrowers and savers?

For the last few years Australian banks have continued to flourish, with profit margins reaching new levels and shareholders laughing all the way to… well, the bank. But what about ordinary Australians who, despite the RBA cutting the cash rate, still struggle to meet their monthly mortgage payments and have seen their meagre savings all but obliterated? Who cares about them? No one it seems.

I do not believe that the release of the report by UBS Investment Research and the analysis by Professor Sathye is the first time that the Government has been alerted to the ‘funding cost’ rort which is being perpetrated by the big banks. The biggest threat to bank profits is a blow-out in operating costs, one which the banks counter by sending jobs overseas, where the employment market is more competitively priced. So if the banks are showing no loyalty to the Australian public, why are they being protected by our Government?

This is a Government which only last week rushed legislation through Parliament to enable it to make a grab for money held in savings accounts which have been inactive for three years. Yet it can’t see the need to introduce legislation which will force the banks to follow the lead of the RBA, which surely should be the leading authority in banking policy?

With so many Australians being slaves to the banks, whether in the form of a mortgage, savings account or simply a means to have salary or benefits deposited, it’s about time we do something to redress the balance. Rather than waiting for a Government to fight on our behalf, it’s time to make the switch to a smaller, more competitive bank and leave the big four wondering what has hit them.

Are you happy with your bank or would you consider switching? Is it the Government’s role to step in and stop the banking rort?


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    4th Mar 2013
    The big banks lost me years ago, and I put my trust into the Bendigo Bank.
    I am not sorry, and I am even very glad, as their services are excellent, and both the bank and their staff are very helpful.
    Kevie from Buderim
    4th Mar 2013
    I am not a borrower but a depositor...
    Can you please define "Fair"???
    Barnacle Bill
    4th Mar 2013
    The big banks are like the rober barons of old. Thet have made huge profits out of the everyday Australians, and are now greedy to protect those profits.I use banks, ans other finacial businesses as a tool, and not a necessity. I am here for ME, not for them. In other words , they suck!
    4th Mar 2013
    I have a "deeming" account with eight (8) free transactions per month, regardless of what those transactions are. The banks are quick to hit you with all different types of fees i.e. writing out a cheque, getting served by a teller personally, differing ATM charges etc. etc. once you go past the 8 free transactions. If you go to a different type of savings account where you don't get charged for the transactions you make in a particular month, they seem to find another way of charging you such as monthly account keeping fees etc. I would like to see all DEEMING accounts with more than the current 8 free transactions per month upgraded to 16 free transactions per month. Banks have not upgraded deeming accounts for pensions for many many years. In today's climate where we sit at home and pay your monthly/quarterly bills via ONLINE BANKING and then we go shopping for our food etc. I find 8 free transactions is not enough anymore. When I food shop now I get cash out so that I don't go to the bank for cash. When I get to the point where I have used up my 8 free transactions I then purchase on my credit card and pay that off entirely each month so that I don't pay any interest charges. The only problem I find is wanting cash after I have used up the 8 free transactions because if I go into the bank they charge me $2.50 for teller service!!! and, of course, nobody in their right mind would get cash out of a credit card. I had a small amount of savings in the IMB and for 6 months you got a higher interest rate which reduced by one per cent after the 6 months. I added $50 per month to the initial deposit and didn't touch it for over 12 months. My husband passed away and I needed part of that money for funeral expenses and immediately the day I withdrew the funds the interest stopped altogether for a period of 6 months. I went home, withdrew all the funds from the IMB via the internet back into my deeming account. Wherever you deposit the small amounts of money you frugally save, Banks and/or credit unions, building societies etc. manage to claw it back one way or another.
    Nan Norma
    4th Mar 2013
    I'm puzzled as to which bank you use. I use two banks and don't pay any fees and withdraw as many times as I like. I also keep as little as possible in a deeming acount.
    4th Mar 2013
    I don't know where you are ,Egyptian, but I am up here in Qld, and use the Bank of Queensland. I use a Pensioner account,and my wife and I have a joint account, which gives me/us as many transactions as I/we like including deposits, withdrawals, internet and cheques.. If you are a pensioner, you might like to get into the BOQ, there are branches ion most states. Are you in Qld Nan?>
    4th Mar 2013
    Thanks for your input Nan Norma and Frank. I live in country NSW south coast.
    We have the 4 big banks plus the St. George Bank and the IMB. I bank with Westpac and have a deeming account (which is a pensioner account). This allows the 8 free transactions BEFORE the bank starts charging fees ranging from 25 cents up to $2.50 if you actually go into the bank and w/draw funds at a teller. All the other Westpac savings/cash/transaction accounts have fees starting at $5.00 and have $5 monthly a/c keeping fees. The Deeming A/c pays 3% interest - those other accounts either pay nothing at all or pay amounts varying from 0.25% to 4.50% for the reward saver accounts for a limited period and then revert to 3%. Where I am situated I don't have heaps of choice. I suppose I should look into the Commonwealth, the ANZ and the NAB and re-visit the IMB.
    4th Mar 2013
    I take it for granted that anything a banks say is the same as a politician during an election. That is, self-serving and with no basis in truth.

    It has been my opinion for many years that the only way to make money with a bank is to hold shares in it. The bank only acts in the interests of its shareholders. Customers are simply the way they make money.

    I took my business away from the banks many years ago and gave it to a credit union.

    I get a laugh every time I see that stupid series of NAB ads where they comment that Australians are an honest people that deserve 1% on their credit cards. What a joke! Isn't it a pity they do not act as they advertise and act honestly.

    But, how could a bank make money if they were constrained by acting with honesty or integrity? What would the shareholders do?

    4th Mar 2013
    The shareholders have no conscience or morals,Peter, or they would not be sharing in the profits made by treating hardworking Australians like sh.t
    4th Mar 2013
    This is a subject of great complexity and breadth and I bet that the bulk of posts on this one will display the lack of grasp of the subject matter.
    People always whinge when their borrowing rate increases or, in the current case, fails to decrease at the desired rate. For this purpose, the desired rate is the cut in the "official" interest rate as set by the Reserve Bank.
    On the first Tuesday of each month the RBA board meets and considers a mountain of data supplied by Treasury, the Commonwealth Dept of Statistics and many other sources in order to arrive at a notional interest rate determined to satisfy the competing needs of all commercial enterprises and to affect the national accounts and financial standing of this country in the eyes of overseas investors.
    Consider for a moment, if the RBA was an active borrower/lender in the open market place with all that that entails, would they come up with the same conclusions. I tend to think not because they are not subject to the real time imperatives of the commercial banking sector where there is a multitude of pressures that must be catered to.
    A commercial bank is a business that is trading (i.e. buying and selling) money with a margin between the two facets that must be sufficient to sustain the business, pay taxes to the Govt, keep people employed and finally, pay dividends sufficient to retain the interest of their investors.
    I have tried, with some success I hope, to explain that the RBA deals in theory and forecast whereas the commercial banks deal in reality in the market place. At whatever points their functions merge, is more coincidental than ordained.
    Tom Tank
    4th Mar 2013
    This is a fine explanation of how the banking system works but it does not include the massive profits, not to mention the obscene salary levels and bonuses paid.
    It seems that no-one is happy unless the profit increases each year, OR, are the bonuses being paid linked to an increase in profit so that whatever it takes to increase the profit will be done. The real driving force then being not the shareholders dividends but the Executive's greed for even bigger bonuses.
    Perhaps I am just cynical and the Banks exist purely for the good of their customers!!!!
    4th Mar 2013
    Paddles = a good interpretation but too simplistic really.
    The RBA has 3 main objectives in applying Monetary Policy
    To maintain the stability of the Australian currency
    To maintain full employment in Australia
    To maintain the wealth and prosperity of the people of Australia

    They do this by adjusting interest rates in relation to inflation.
    If inflation is too high they will increase interest rates to slow growth, too low and they will decrease rates to promote growth.

    The Commercial Banks use the RBA, and its cash, as a "buffer", they do take loans from the RBA and the RBA in this regard operates as a "commercial" bank. That is why they set interest rates. The rate they set is the rate that other banks pay for RBA funds. If the so-called BIg 4 can get it cheaper good on them but I doubt it

    Suggest that you check out
    Tom Tank
    4th Mar 2013
    Once upon a time in a sunburnt land called Australia the Government get fed up with the predatory behaviour of the Banks. To exercise some control and help the people of that fair land they set up the "People's Bank". In time this became the Commonwealth Bank which was part of the Australian Banking system and in competition with all the other banks but because it was Government owned in did not indulge in that type of predatory behaviour.
    Suddenly the Evil Genie "Privatisation" was let loose on the Land. The Commonwealth Bank was sold off and guess what? Yes - banking in Australia, no longer under any form of control by a more customer friendly bank, returned to the behaviour we are all subjected to now.
    Hawke and Keating should hang their heads in shame at what they did to the Australian Public.
    4th Mar 2013
    Not happy with your bank? Try your local Credit Union or buy shares in your bank, they are there for their share-holders. I can think of no way the banks can be forced to be anything!
    4th Mar 2013
    Doing business with the "Big Banks" is a mugs' game. I do my banking with a credit union and it suits me fine. I left the Big Bank I was dealing with in the nineties. I suggest that you should look around at what else is on offer if you are unhappy with your current bank. It might be a pain in the**** to change all the arrangements you have made, but it is worth it in the long run.
    4th Mar 2013
    You are so right Tom Tank, as they sold the banks, the government allows the land that creates renewable wealth to our country to be sold off to any foreign country , it is heart breaking to think that men gave their lives for our way of life and love of this land, and now Governments are allowing everything to be privatised, this has to stop, because we are being invaded in the name of free trade!
    Go to a building society , fight with your feet and walk away from the greed. If only we all stick together we would be a forminable force.
    The profits should be going to the common good.
    4th Mar 2013
    You are all on the right track with the banks' motives - looking for something else, I recently found an article on the history of the Commonwealth Bank. Tom Tank you may be interested to read it. - and I guess the same methods would be applied to all the four big banks. Hawke & Keating may not be squeaky clean but neither is the Commonwealth Bank.
    4th Mar 2013
    Take your money to a Credit Union or Building Society! I did years ago, never looked back.
    Low or no fees and more flexibility than a Bank. Even Bendigo Bank is an offshoot of one of the Big 4 (not sure which, NAB I think)
    5th Mar 2013
    The government taxes the mining industry if they make big profits ,why not tax the bank if they have big profits ,then l suppose they would pass that on to their customers would suffer again just stick ya money in a jam tin under the bed
    5th Mar 2013
    "DO THE FAIR THING"!! My account is with one of the big banks and I have a "direct debit" and a fixed regular payments system in place. My account is very modest and the only income is from our age pensions (full rate) and is nearly exhausted by the time of the next pension payment.
    I find it to be much more convenient than having to personally pay my accounts every month. But, in the context of "fairness" last fortnight, two of the direct debits fell on the same day as the pension. My carry forward balance from the previous fortnight was $33.00. But, the two direct debits amounted to $56. The bank debited the two direct debits and put me in debit by $23.
    My pension was THEN credited (the same day) which put me back into credit. But, because I did not have enough in my account to satisfy the direct debit payments that I have had organized for years, I was charged a "fee" of $5 for that and then another $5 for going into debit. I had breached two regulations!!
    I complained, mildly, because I had breached those regulations, I got nowhere, but, that's just an example of big bank "fairness".
    5th Mar 2013
    Hi Grateful:
    Not quite the same thing but I was moving (downsizing) two years ago and with all the chaos (my husband at the time in a wheelchair, since deceased) I forgot to pay our credit card on the due date and got a late payment fee which I felt was excessive. I was advised by the teller (when I complained) that I had always paid on time for years and years and she told me to write to the credit card section and state my case. This was worth doing. Because I had this extra fee for late payment it actually incurred "interest" immediately. I got an immediate response and apology and everything waived. Grateful, go into your branch and although you have stated your case already, get the name of somebody there you can write to. Once you put something in writing it has more impact than word of mouth. My credit card is not used other than to pay three monthly bills. I know exactly the amount each month and pay it on or before the due date. I've mainly found that if I state my case in a nice way, don't get agro etc. most organisations are receptive. There's an old saying "You Get More Response with Honey than you do with Vinegar. Good Luck with your bank.
    5th Mar 2013
    Is it true that as a group, we tend to complain bitterly about something and then do nothing about rectifying it? The banks, among other organizations, (including government: local, state and national), and insurance companies, will do nothing to improve their services or policies unless we take steps to change them by voting with our feet and cheque books. Do nothing but whinge and you get what you deserve.

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