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Former RBA governor Bernie Fraser has lambasted the major banks, saying they're putting shareholder interests above those of their customers. But one economist says the real story is not quite so simple.
In a Fairfax interview published this morning, Fraser says that despite lenders claiming they’re striking the right balance when it comes to serving investors, savers and borrowers, when it comes to mortgage-holders, the majors are putting profits first.
''It's a question of the relative priority they attach to their shareholders and their customers. That's been the case right through the recent period when they haven't always passed on all the RBA moves. They've had scope then, they have scope now, to [move downwards on interest rates] independently of the Reserve Bank. They've got room in terms of profitability; it's a question of their priorities, really.''
However, Macrobusiness economist, Leith van Onselen, told Australian Broker the major banks are not solely to blame.
#pb# “I’m sure there’s an element of proof in [Fraser’s comments] – but the RBA base interest rates on what borrowers actually pay and had banks actually passed on the cuts in full, they wouldn’t have dropped it.”
Van Onselen argues that the RBA doesn’t set the rate independently and agrees with earlier comments made by current governor Glenn Stevens.
“The RBA wouldn’t have lowered the cash rate as much had major lenders passed the interest rate cuts on in full. Glenn Stevens have been explicit on that point – we sent the cash rate at what borrowers actually pay.”
Bank home loan customers have received an average rate cut of 0.93 percentage points in the past year, while the RBA made a 1.25 percentage-point cut in the cash rate in the same time frame.
Fraser describes bank profits as ‘very, very healthy’ and questions how competitive the market is.
#pb# ''I used to think that you could get competition with four good competitors, but they're not sort of demonstrating that belief of mine, really. I live in hope that one will take a lead one way and do something a bit more dramatic and that will spark a bit more real competition.''
Van Onselen, however, says that despite many predictions of a rate cut following tomorrow’s RBA meeting, he believes the cash rate will stay the same – as will major banks’ behaviour.
“If banks came out tomorrow and cut interest rates by 25 basis points, the RBA would probably just adjust the rate upward again in the next few months. People say the banks are screwing borrowers – not necessarily. The RBA has room to move the cash rate if they want to.”
