We’ve heard plenty from the major banks of late about how their funding costs are going up, and how they just “have to” pass on those increases to you, their customers. (Of course, just as much of the reason is that they want to and perhaps most importantly, that they can.)
But in watching the banks’ reaction to this month’s Reserve Bank rate rise (as we do each month on our Reserve Bank interest rates page), we’ve seen something that clearly goes beyond passing on cost increases and is a clear demonstration of them squeezing customers for greater profits:
They passed on the RBA rate rise faster than they passed on RBA rate cuts.
In February and April this year, the Big 4 passed on the RBA’s rate cuts an average of 9 days later. But this month, when the RBA increased the official rate, the average was only 5.25 days. Just by speeding things up a little, the Big 4 banks get to charge that extra 0.25% for an extra few days – and on a total home loan portfolio of $650 billion, those numbers multiply out to $17 million. And that’s on top of the fact that not all of the last few RBA rate cuts were passed on at all.
What can be the justification for this?
If they can raise rates in 5 days, why couldn’t they move in 5 days when the RBA was cutting rates by 1%? In December 08 and February 09, Westpac did manage to do that but ANZ, Commonwealth and nab steadfastly stuck to their 9 day delay (or in one case, did not pass any cut on at all!). And then in April, Westpac went the other way and took 12 days to pass on the cut. So they’ve all managed to hold onto a rate cut for longer than necessary, and longer than they are willing to hold onto a rate rise. And we’ve seen evidence of the same sort of thing this month from several of the smaller lenders – including AMP Bank, HSBC, ING Direct, ME Bank and MyRate – who seem more than happy to follow the lead of their bigger rivals.
You have to start wondering whether a home loan industry that is so dominated by a few players doesn’t need a little extra regulation to turn underhanded practices like this into something more even-handed.
But they say that sunlight is the best disinfectant, so Mozo will keep shining the light on this one.
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