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ABA WELCOMES RESERVE BANK REPORT ON BANK FEES
Sydney, 19 May, 2005: The Reserve Bank of Australia’s (RBA) report on bank fees records that in 2004 growth in banks’ domestic fee income was the lowest it has been in the survey’s eight-year history.
The RBA also noted that the recent growth in bank fee income appeared to be attributed to increases in the use of banking services, evident in the higher number of customer accounts and transactions, rather than increased charges.
The RBA continues to note that households and businesses are still benefiting from competition in the banking industry because savings due to lending margin declines are greater than increases in fees1.
The RBA today published an article on bank fees which is based on a survey of 19 financial institutions offering retail banking services.
Additional findings
For 2004:
- Total domestic fee income grew by 4% compared to 2003, one-third the rate of the increase of the previous year and the lowest in the survey’s history;
- Total bank fee income from businesses (large and small) fell by 1% compared to 2003, attributed to the decrease in merchant service fees;
- Bank fee income from households grew by 12% compared to 20032. Strong growth in fee income from credit cards contributed most to the growth;
- Growth in fee income was significantly slower than that in the banks’ balance sheet assets, with the result that the ratio of fee income to average assets fell to 0.9%, well below the level of recent years.
David Bell, Chief Executive of the ABA, said: “This report is good news for bank customers as they are still benefiting from the competition that has produced interest rate margin declines.”
“And most banks are providing low-cost or no-cost bank accounts, which eliminate financial barriers for low-income customers, students and pensioners, accessing banking transactions.”
Mr Bell said the RBA report stated that fees paid by households on credit cards grew by 30%. The RBA noted that contributing to that rise - was the growth in the number of credit card accounts, spending per card, a rise in unit fees, an increase in some annual membership fees and increases in charges for cash advances, overdrawn accounts and late payments.
Mr Bell said: “Increases in credit card fees as detailed in the RBA report are in part due to factors flowing from the RBA’s interchange reforms.”
While the RBA’s interchange reforms led to increased fees for consumers using credit cards, they have led to a substantive decrease in fees for merchants who accept credit cards.
The RBA report said that competition between banks has since seen this reduction in interchange fees flow through fairly quickly to a fall in credit card merchant service fees, resulting in a reduction in average merchant service fee of around 25%.
For further information:
Heather Wellard
Director, ABA Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
ENDS
1 ABA estimates are based on Australian Prudential Regulation Authority (APRA) home loan data as at December 2004. Methodology reflects a 2.76% interest rate margin reduction since 1994 on outstanding home loans which would result in savings to households of around $13 billion in the last year - had the full margin decline not taken place.
2 The 12% increase in fee income from households can be attributed to increases in transaction volumes. Households, for example, paid an additional 7% in fees on their transaction and deposit accounts in 2004 and the volume of transactions went up by 8% for the same period (based on available data sources for household transaction and deposit accounts - which includes ATM transactions, Internet banking, cheques and EFTPOS – the bulk of consumer transactions). Households paid an additional 9% in fees on housing loans and the volumes of loans increased by 10% (based on Australian Bureau of Statistics home loans data – the number of loans to owner-occupiers). |