Sydney, April 17, 2003: The Australian Bankers’ Association (ABA) has today released an independent report showing that the growth in bank fee income was outstripped by the growth in banking business in 2002. 

The report also shows many borrowers are benefiting from the continued reduction in bank interest rate margins leading to households saving $6.3 billion per annum and businesses saving $3.8 billion per annum – in total $10.1 billion worth of savings, compared to ten years ago. These interest rate margin falls are the main contributor to lower Australian interest rates and more than offset any increase in fees.

To contribute to the public discussion on fees paid for banking, the ABA commissioned PricewaterhouseCoopers (PwC) to complete an independent analysis called “Survey of Retail Banking Fees - An Independent Analysis, April 2003.” (see notes below).

The PwC report concludes that the fee revenue data means little unless it is placed into context of the underlying business volume which has been increasing.

The key findings of the PwC report from data collected from 15 ABA member banks are:

• Retail banking fee income continues to fall from 54% in 1999 to 42% in 2002 as a percentage of bank non-interest income;
• Retail banking activity has risen overall by 10.8% in 2002 measured by increases in household and business loans and deposit balances;
• Banking business has increased  - for example - home lending increased by 13%, personal loans up 35%, credit cards lending up 14% and household deposits grew by  13%;
• As you would expect, the 9.7% increase in total fee revenue in 2002 has come primarily from that additional growth in business;
• Therefore the raw data fee increase in 2002 cannot be used as a proxy for what most households, small business and large business pay for banking services as it is most commonly and erroneously interpreted;
• Fees for self-service banking channels, which are cheaper to provide, are largely unchanged since 2000, while fees for face-to-face transactions, which are more expensive to provide, have risen;
• Personal loan and credit cards borrowers are paying more than in the early 1990s.

David Bell, Chief Executive of the Australian Bankers’ Association (ABA), said: “The cost of banking has fallen significantly for many borrowers such as home owners, small businesses and large businesses which continue to benefit from the falls in interest rate margins.”

“Customers are saving considerably more on interest charges than they are paying in fee increases. Overall, banking for home loan borrowers and businesses is cheaper today than ever before.”

“In 2002, if you borrowed 164, 000, you will face annual interest charges of $10 500 plus fees of $300 – total $10 800. The same level of borrowing in 1993 would face annual interest charges to more than $15 000. That means the borrower in 2002 is better off by $4000 a year.”

Mr Bell said over recent years, electronic banking has soared in popularity. In the past five years, ATM withdrawals per month have increased 67%, EFTPOS withdrawals per month have increased 63% and credit card transactions have risen 211%.

Rahoul Chowdry, PricewaterhouseCooper’s Financial Services Industry Leader, said; “Bank customers have always paid for banking services, although in the past transaction accounts were perceived to be “free” because costs were hidden and paid largely by borrowers in higher interest rates.”

“Today interest charges are lower - saving consumers billions of dollars in repayments, but banks are now transparently charging directly for many services.”

Mr Bell said: “Customers pay to have a bank ensure their funds remain safe and secure, is available when they want it, and can access their accounts 24 hours a day, seven days a week.”

“In the ‘user pays’ system, banks recognise that there are those in the community who need ‘safety net’ basic bank accounts such as pensioners and disadvantaged groups, who pay no fees provided customers keep within the reasonable usage limits.”

“I noted that in these times of uncertainty households relied on the safety and security of the banking system and put 13% more funds in banks.”

Notes for editors:

• The PwC report is a preliminary analysis of data provided by 15 ABA member banks which represent 98% of the market.  The PwC’s report’s conclusions are based on this data and publicly available information on loans, deposits and transactions as published by the Reserve Bank of Australia and the Australian Bureau of Statistics. 
• The Reserve Bank of Australia’s Monthly Bulletin which is released today is based on data collected from 19 banks – therefore the data will be different to the PwC report which has interpreted data from 15 ABA member banks.
• Critics have always used the aggregate figures when making comment about fees, but have failed to provide to take into account the number of transactions completed by
  bank customers. Overall, business activity and bank transaction volumes continue to increase each year.