Media reports wrong on banks’ profits and loans

Sydney, 3 June 2010: The Australian Bankers’ Association (ABA) said media reports¹ claiming banks have used the global financial crisis to ‘gouge’ customers on loans are wrong.

Steven Münchenberg, Chief Executive of the ABA, said: “It’s disappointing to see this misleading media commentary because it’s important that any public debate be based on the facts.”

“Recent analysis of bank results shows a small fall in interest rate margins. This contradicts the claim that banks are overcharging on interest rates.”

“It is important to note that bank profits are only just recovering from the impact of the global financial crisis (GFC). Compared with the peak reached two years ago, industry profits today are down 22% in annual terms. This contradicts the claim that the sector posted record profits and clearly demonstrates the effect of the GFC.”

The media reports say banks have increased rates more than the cost of their funding – this is not true for home borrowers. The Reserve Bank has pointed out that for riskier forms of lending, for example to some businesses, banks have rightly re-priced for risk, in addition to passing on higher costs of funding.

Mr Münchenberg said: “Solid, healthy banks that continue to make profits are vital for the future growth of our economy. Around 30 cents of every dollar lent in Australia has to be raised offshore and international investors will not lend to banks which don’t record healthy profits.”

The ABA does not agree with the claim in the media reports that three and five year fixed rate housing loan customers are being disadvantaged.
 
Mr Münchenberg said: “If you look at the margin between the three-year fixed housing loan rate and a relevant funding instrument, such as the three-year term deposit rate, it is at near historic lows. If you look at the spread to the three-year bank issuance, it has returned to average pre-GFC levels. If you combine the two, there’s been a fall.”

Due to the continuing impacts of the GFC, banks’ funding costs remain high. The recent sovereign debt crisis has demonstrated that GFC impacts continue to affect markets and the price of wholesale debt. It is important to note that debt secured at lower prices before the GFC is still being replaced with more expensive funding.

 
For further information: 

Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439

ENDS

[1] “ Banks’ gouging brings in billions”, by Stuart Washington, “The Sydney Morning Herald” page 1 and the same story was syndicated to “The Age” page 1 but a different headline was used.