Banks put profits first
It might seem like a distant memory but there was a time when Australian banks moved their standard variable rates alongside the official cash rate, maintaining a steady margin of 1.8%. However, in 2008 financial markets were thrown into turmoil and the cost of funding skyrocketed. Bank profit margins were squeezed and they turned to their home loan customers to help fund the shortfall.
Banks are well within their rights to make a profit. After all, they aren’t charities and a strong banking sector is vital for our economy. However, when banks are forced to decide between their customers and their shareholders, more often than not homeowners are asked to step up.
The margin between the cash rate and the bank’s standard variable rate is now 3.75%, more than double what it was 10 years ago, adding tens of thousands of dollars to the repayments of mortgage holders. Yes, the banks’ net interest margins have dipped slightly over this time but a 0.12% drop for Commonwealth Bank and a 0.06% drop for Westpac doesn’t quite pass the sniff test.
Sally Tindall, money editor, ratecity.com.au