THE big banks are creaming off almost $100,000 in profit from struggling home owners in our major capital cities, data shows. The banks' profit levels on the average 25-year mortgage more than doubled in the past 12 years as property prices rose. The numbers raise questions about claims from the banks that higher funding costs are crimping profits and preventing them from passing on the full benefits of Reserve Bank rate cuts.
The purpose of this brief is to estimate the profit earned on mortgages by the ANZ Bank, the Commonwealth Bank of Australia, the National Australia Bank and the Westpac Banking Corporation known as big four banks. The method here is to estimate the average profit margin on bank home loans and then to apply that to the amounts people are borrowing at the moment. The estimates here are based on the data presented in Table 1 which in turn are based on statistics published by the Australian Prudential Regulation Authority.
Every day that the Big Four banks delay passing on the Reserve Bank's interest rate cut of half a per cent represents a transfer of around $12 million from home buyers with variable loans to the banks, according to The Australia Institute. An analysis of the ANZ's new financial report shows that the bank has been crying wolf about cost pressures at the expense of its customers. While the ANZ has been complaining that their cost of borrowing has been increasing, the Consolidated financial report and dividend announcement, Half year 31 March 2012 shows that their interest expenses are down two per cent.
Wouldn't it be nice to decide how much you were worth? And wouldn't it be even better to be able to force people to give you the money you think you deserve? Of course it would, but then again, we can't all behave like the big four banks. In most industries when customers buy less of your product your profits begin to decline. But not, it seems, in banking. In banking, the bankers tell us, if the rate of growth in borrowing begins to decline then the profit margin on their existing loans simply needs to rise. Otherwise their profit growth would slow, and we obviously couldn't have that.
The Senate Economics Committee report into the banking sector, released today, is a disappointing missed opportunity to initiate much-needed reform to rein in the power of Australia's big four banks which exploit their market power at the expense of consumers and small businesses, according to The Australia Institute. Senior Research Fellow David Richardson said the history of the banking sector showed measures to promote competition invariably fail and that a tougher approach is needed. “Despite that history, the Committee has pinned its hopes on more competition, as reflected in most of its recommendations.
We take it for granted: cold, hard cash on demand. Any time. Any place. And if we can't find an ATM operated by our own bank, then we're prepared to throw money -- big money -- at whatever we can find. Whether it be a hole in the wall at our laundromat, or a free-standing machine in the shopping centre, we're happy to pay extra to get our cash right away. In fact, each year Australians spend $753 million on fees to operators of so-called 'third party' ATMs -- that is, machines which aren't operated by the institution with which we bank.
The extraordinary profits of Australian banks have, once again, ignited the debate on how to control them. You could argue, as the banks do, that these are large companies and you expect large profits. The Australian Bankers Association say the total asset base of the big four banks required to earn these profits is $1,170 billion and the return on these assets is less than 1 percent. Richard Denniss, Executive Director of The Australia Institute, says that's like valuing a car park based on the building and all the cars parked in it. They don't own the cars and the banks don't own our money.
Each and every day millions of Australians pay financial institutions to access their own money. Some pay more while others pay less, depending on the way they do it. Sometimes, as with EFTPOS transactions, the price consumers pay for their own money is largely invisible, being factored into the prices of goods and services. In other cases, the cost of using your own money is embedded in bank fees, or else in forgone interest from transaction accounts with negligible rates of interest. One of the most expensive ways for Australians to access their own money is by using a third-party automatic teller machine - that is, as ATM not provided by their own bank.
One of the most expensive ways for Australians to access their own money is by using an automatic teller machine (ATM) that is not provided by their own bank. In most cases, third-party ATMs charge $2 for every transaction, including checking one's account balance. In other words, $2 is the price consumers pay every time they are 'disloyal' to their bank. In April 2009, the Reserve Bank of Australia (RBA) put in place a package of reforms to the ATM system.
Australian consumers are still spending more than $750 million per year on ATM fees despite attempts by the Reserve Bank to reform the ATM system, a new paper by The Australia Institute reveals. The price of disloyalty: Why competition has failed to lower ATM fees finds that while an overwhelming majority (82%) of Australians believe it is unfair for banks to charge such fees, one in four (26%) of those surveyed reported paying a $2 fee by using an ATM not provided by their bank at least once in the week prior to the survey.