Banks put prof­its first

Money Magazine Australia - - THIS MONTH -

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, rate­

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