Internet Loans
internetloans.com.au

Rates Up, Now Banks Get Tough On Loans

6 May 2000

Fresh from posting record-breaking profits, banks are set to make it harder for customers to borrow money because higher interest rates have made lending riskier.

The tighter credit controls were suggested as ANZ, National Australia Bank and Westpac all disclosed rises of 10 per cent or more to record half-year profits this week.

Including Commonwealth Bank's interim profit outlined in February, the big four banks will likely earn more than $8billion in profits for the full year.

Meanwhile, National Australia Bank and St George Bank both lifted home loan interest rates in line with the Reserve Bank of Australia's 0.25 percentage point increase in official interest rates on Wednesday.

Yesterday, however, the RBA indicated that further rate rises may be on hold depending on the impact of the GST in adding pressure to prices mid-year.

With the RBA this week warning that household credit growth was unsustainable, the banks are also preparing for a downturn in lending by making it harder to get personal loans and loans for property. Westpac's managing director, Dr David Morgan, said the bank had already put a ceiling on property and unsecured personal loans, and agreed with the RBA that credit growth was increasing at unsustainable rates.

``We have already taken action well in advance of the deterioration of the cycle," he said.

But the banks still hope to expand earnings as interest rates rise, helped by cost-cutting and fee income, as well as moving into other financial services such as funds management.

The managing director of Aussie Home Loans, Mr John Symond, said: ``The huge growth of bank fees and charges, reflected in the banks' interim profit results this week, indicate that they are excessively charging Australian consumers."

A key part of the strategy is to encourage customers to use electronic banking services, which are much cheaper than other service provision mechanisms.

This week the chief executive of NAB, Mr Frank Cicutto, described the process as ``shepherding" customers to banking over the Internet.

However, Mr Chris Connolly, from the Financial Services Consumer Policy Centre, said that as customers had transferred to online services, banks had been putting up the fees.

``Fees on electronic banking services have gone up 20 per cent in the past two years," he said. ``It means that banks have managed to convince a lot of people to use EFTPOS, ATMs and Internet banking but at the same time charges on these services have been going up."

He said most electronic transactions cost banks only a few cents each but the fees to customers can be as high as 65c. ``There seems to be no relationship between the actual cost and the cost to consumer."

Branch closures and the rationalisation of services is also bolstering the bottom line of the big banks. The secretary of the Financial Services Union, Mr Geoff Derrick, said about 2,000 branches had closed in the past decade, and the number of financial sector workers had fallen by 40,000.

``The whole industry is adopting a complex strategy to move customers away from human services in an effort to cut costs," he said.

Mr Derrick said NSW would face a new wave of bank branch closures after CBA's merger with the Colonial State Bank.

``We could see up to 200 branch closures, most of them in NSW," he said.

WESTPAC
Fees and commissions:      780m
Trading income:                     63m
General and life Insurance    256m
Other income:                          86m
Interest:                               4,799m
Total:                                    5,964m

Back to News Index | Back to Home