ABA furious as ACCI compares banks to highway robbers

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The Australian Banker’s Association (ABA) has lashed out at Australian Chamber of Commerce and Industry (ACCI) chief executive, Peter Anderson, following an article in which Anderson likened the major banks’ refusal to pass on interest rates in full to ‘highway robbery’.

Anderson made the statement in an opinion piece published by the Herald Sun late last week.

“The fine print of the February [RBA] decision lets us into an important trade secret. It tells us that lending risks for banks have narrowed and that funding conditions for financial institutions are more favourable…The unfavourable funding cost pressure that banks used as justification has eased. Keeping a portion of a customer’s interest rate cut on an on-going basis…is highway robbery.”

However, the ABA’s chief executive, Steven Münchenberg, says the piece demonstrates a ‘very poor grasp’ of business economics and monetary policy and that Anderson’s claims that banks’ funding costs have declined is ‘incorrect’.

“ACCI’s call is based on both false claims and a profound lack of understanding of how monetary policy works. This is very disappointing…As recently as last week, the RBA made it clear in its Statement on Monetary Policy that, relative to the cash rate, banks’ outstanding funding costs are estimated to have been broadly unchanged over the past three months.

Prior to that, he says the RBA was confirming that bank funding costs were elevated and not all of those higher costs had been passed on to customers.

“While we have seen some promising improvements in longer-term wholesale funding…that improvement in wholesale funding is having only minimal effect on banks’ overall funding costs.

Münchenberg says the ACCI has ‘consistently’ argued that banks should not pass on their higher funding costs to their customers and that the ABA would be ‘interested’ to know whether ACCI maintains this principle for all businesses – that they should absorb rather than pass on some of their higher input costs.

“ACCI has also shown a remarkable misunderstanding of how the RBA manages monetary policy. The RBA is concerned with the level of interest rates in the market, that is, how much households and businesses actually pay. The RBA uses the cash rate to influence those market rates and seeks to strike the right balance between economic growth and the containment of inflation.”

He says the RBA is ‘broadly happy’ with where interest rates currently stand and that, if it had wanted to see lower retail rates, it would have cut the cash rate at its February 5 meeting.

“The flaw in ACCI’s call for interest rate cuts is that, even if banks cut rates, the RBA would merely move the cash rate up until retail interest rates were back to where they are today.”

  • John Robbo on 18/02/2013 11:37:53 AM

    Personally - I think the comparison is rather harsh - on highway robbers!

  • Country Broker on 18/02/2013 11:06:51 AM

    Is this a case of "if the cap fits wear it ?"

  • SunnyCoastBroker on 18/02/2013 10:34:58 AM

    So, even with higher funding costs, CBA announces another increase in profit. It's so generous of the Banks not to pass on those higher funding costs to the borrowers.....

  • Chris C on 18/02/2013 10:28:12 AM

    That's funny - why is it then that our Major Banks have made record profits (against the trend of nearly all other banks in the world) and when a lot of other businesses are losing or closing down over the last 5 years of recession and we have more people on the poverty line now than Aust has had in 25 years. Their funding costs have reduced in spite of what they tell us (otherwise we would not have seen these record profits). But they have had a break even, one a reduced asset book in the last year (a poor year for them) and competition is gradually creeping back. Of late, we are seeing the major banks dropping rates and offering incentives to become more competitive to keep the business as in the past 5 years they have not had to because they have held a monopoly in the Australian finance market 90%+ They could easily have passed on rate reductions but they chose not to .... they are in the business of making money and while opportunity permits, makes hay while sun shines ..... we are tired of seeing the majors crying poor all the time and when this rubbish comes out how do they think we will accept their continuing reasoning and excuses.

  • SteveL on 18/02/2013 10:27:29 AM

    Well said Mr Anderson. We all know this as fact. There is no such thing as a discounted loan nowadays and anyone who thinks there is....is either stupid, blind, naive or tick D...all of the above. The banks have re-claimed ground lost in the pricing wars of the late 1990's - Mid 2000's. The excuse of Cost of funding was always a load of rubbish....as their profits soared. As for Mr Munchenberg of course he is going to protect his interests and call any opposition "Misunderstanding....(Stupid)" that unveils the corruption and robbery going on at this level. Time for an enquiry perhaps? Then again our politicians are owned by the Banks. just look at NCCP and how that has provided a massive windfall for the banks at the disadvantage of brokers. DISGUSTING!

  • Broker on 18/02/2013 10:13:35 AM

    The fact is that banks have gone from making about 16 billion profit per annum in 2007 to about 25 billion per annum this year, amazing results considering the brittleness of the economy over the same period.
    One only needs to look at the seriously over inflated business rates and credit card rates to see that consumers are being well and truly shafted
    In summary, our major banks have as much creditability as our oil companies, which is a big fat zero.

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