Treasurer Says No Justification For Banks To Move Rates Above Official Rise

Homeowners and credit card users are paying on average an extra $3000 a year due to the global financial crisis.

Treasurer Wayne Swan has repeatedly asked the banks to stay in line with the Reserve Bank rate rise but to no avail.

Last week after the Reserve Bank increased its rate by 25 basis points Westpac, Commonwealth and ANZ raised their rates a fair bit higher than the level set by the Reserve Bank.

Treasurer Wayne Swan said that he felt that there was no reason for Commonwealth or ANZ to move their home loan rates above the official rise.

The banks are maintaining that they need to raise their rates higher than the Reserve Bank because it is harder for them to raise funds overseas during the global crisis.

Banks increase profit margin on home loans

Research has shown that this extra margin is costing borrowers with a $300,000 mortgage an average of $3129 per annum in extra repayments.

The estimated value of mortgages held by the big four banks in October was $661.4 billion.

Christopher Zinn from consumer group Choice stated that the rate rises by the Reserve Bank were supposed to be a guide to slow the economy not a reason for the banks to boost their shareholders returns.

Even with the global crunch the banks have still managed to show a considerable rate of return.

Last financial year the Commonwealth Bank made the most profit with $4.72 billion, followed by Westpac with $3.45 billion, then ANZ with $294 billion and lastly NAB with $2.58 billion.

The Canadian Banks raise their funds from the same international markets as the Australian banks, and they can operate on a two per cent mark-up so why do the Australian banks need 2.8 per cent?

Accountants KPMG have figures which show that the profit margin over and above the banks cost of funds have risen from 1.67 per cent to 1.88 per cent between 2008 and 2009.

A fair amount of this comes from the hefty increases on business loans.

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Published on December 12-th, 2009 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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