BANK FEE ANALYSIS SHOWS COMPETITION IN THE BANKING SECTOR IS DELIVERING GAINS TO BANK CUSTOMERS Sydney, 20 June, 2002: The Australian Bankers’ Association said the Reserve Bank of Australia (RBA) data released today shows that most bank customers have benefited from the increased competition in the banking sector and that any rise in fees has been offset by a fall in interest rate margins. David Bell, Chief Executive of the Australian Bankers’ Association (ABA), said: “Banks provide affordable banking services to the community.” The Australian Bureau of Statistics (ABS) found in its 1998/99 Household Expenditure Survey that the average Australian individual is estimated to pay less than a dollar a week for a full-range of banking services, including fees on transactions, housing loans and savings accounts. *(see source below) Also the ABS found, low-income households (income of $300 or less a week) are estimated to pay around 50 cents a week for a full-range of banking services. Mr Bell said: “I think most customers would agree it is fair to pay fees for bank services they use as long as they receive value in return.” “Customers know that their deposits are safe and secure. Their bank will maintain facilities that gives them access to funds, 24 hours a day, seven days a week from almost anywhere in the world. This is just some of the value delivered by banks in return for fees.” “Borrowers are big winners because the savings made from the fall in the banks’ interest rate margins has more than offset any increase in fees. For customers with a $100 000 loan, the savings are over $100 a month compared to eight years ago.” “Banks also provide a great deal of support for many people with special needs. There are fee-free accounts offered by banks to children, people with disabilities, pensioners and students.” “The RBA data shows that price competition and technology is having a profound effect on bank operations as banks actively lower their cost base to accommodate lower interest rate margins while moving away from subsidisation of most banking products.”  Analysis of the RBA data shows: ·    The RBA has noted in recent analysis that changes in bank fees since the mid-1990s have occurred against the backdrop of falling bank interest spreads (measured as average interest rate received, less average interest rate paid). ·    Since 1995, the interest spread of the major banks has declined 1.24 percentage points to 2.76 percentage points in 2001.  This reduction in the domestic interest spread equates to a reduction in income in 2001 of more than $5 billion from the interest earning assets of the major banks. This compares to a total increase in banks’ domestic fee income (2001) from banking services of $833 million. Hence the decrease in interest margins continues to significantly offset the increase in fees. ·    The RBA data shows the fall in interest rate margins has led to a clear fall in the cost of financial services to the small business sector. ·    Based on RBA data and their assumptions, the ABA estimates that the interest rate margins on variable rate loans outstanding to small business have decreased by 1.9 percentage points from 1995 to 2001.  Small business variable rate loans outstanding averaged $33,113 million over 2001. Therefore the savings for the small business sector from the reduction in margins on variable rate loans was worth approximately $633 million.  Noting that variable rate loans are about half of total lending to small business, these savings have offset the increase in 2001 in total fees collected by banks form small business by approximately $223 million.  *(see source below) ·    The Australian Bureau of Statistics (ABS) found in its 1989/99 Household Expenditure Survey that the average Australian household pays $114 per year for a full range of banking services, including fees on transactions, housing loans and savings accounts. This is equivalent to $44 per year for an individual or less than a dollar a week. ·    Also the ABS found, low-income households (income of $300 or less a week) are estimated to pay $41.60 per year for the full-range of banking services. This is equivalent to $27 pa for an individual on a low income or 50 cents per week. For further information contact: Heather Wellard ABA PR Phone: 02 8298 0411 Mobile: 0409 830 439 ENDS