Yesterday, the chief executive and managing director of a financial services group “attacked” the government’s criticism of banks for failing to pass the recent RBA rate cuts through to customers in full.
While Treasurer Josh Frydenberg was outspoken in his “deep disappointment” in the banks, and even encouraged borrowers to consider leaving if any of the reduction was withheld from their home loan, MyState CEO and MD Melos Sulicich and chairman Miles Hampton said the criticism failed to recognise that banks are balancing many competing interests.
Speaking at MyState Limited’s annual general meeting, Hampton explained the many considerations the bank must take into account for its rate decisions.
“Borrowers want the lowest possible interest rates on loans, depositors want the highest interest rate on their deposits and shareholders have a right to expect a reasonable return for their capital that facilitates the whole banking process,” he said.
Without competitive loan rates, borrowers will go elsewhere. Without competitive deposit rates, there will be an outflow of the “most important source of funding.”
“Without a reasonable return to shareholders our access to capital will reduce, diminishing our ability to facilitate the important intermediary role we play in the Australian economy,” he added.
However, while none of the big four banks and very few smaller lenders passed the October 25bps reduction to borrowers in full, each of the majors and many smaller banks and credit unions have indeed passed the entire 25bps reduction to their savings account rates, according to Vadim Taube, CEO of financial comparison site InfoChoice.com.au.
MyState CEO Sulicich echoed Hampton’s sentiment that the low – and falling – interest rate environment, unlike any he’s seen before, made the call not to pass on the full rate cut necessary to “ensure the sustainability” of the bank.
Rather than harp on rate reductions, Sulicich encouraged the government to turn its attention to considering the legislative bias towards the larger banks.
“Instead of scoring points by bank bashing, the government needs to focus on the harder task of enabling a competitive environment in which more than four banks are able to compete effectively,” he said.
“In our opinion, the banking environment and competitive and regulatory landscape remains tilted away from smaller banks like MyState. We need to hold more capital than the larger banks for similar loans and the larger banks still receive funding cost advantages due to an implicit government guarantee.
“Removing regulatory impediments will enable smaller banks to provide more of the competition that Australian consumers are demanding, while allowing prudent banking decisions consistent with a stable, sustainable and competitive banking system.”
The Australian Competition and Consumer Commission (ACCC) is carrying out an investigation into these issues, including the rates paid by new versus existing customers, how the cost of financing for banks has affected bank decisions on interest rates, and why RBA cuts aren’t always passed on in full.