Banks 'reap $2.9b' by reducing rate cut
- 9th October 2008
BANKS are exploiting global financial market uncertainty and will rake in $2.9 billion in extra profits by not passing on Tuesday's official interest cut in full, a think tank says.
The Reserve Bank of Australia (RBA) cut its key cash rate by an unexpected one percentage point on Tuesday, but the commercial banks have lowered their mortgage rates by only 0.8 points.
The Australia Institute said the latest RBA figures showed banks had outstanding loans and advances to Australian residents worth $1.46 trillion at July, including residential loans of $722 billion.
"For the banks as a whole, the difference between passing on the full one per cent and passing on 0.8 per cent would be an additional annual profit of up to $2.9 billion on all loans and advances," said David Richardson, a research fellow at the institute.
"On home mortgages alone, the difference between one per cent and 0.8 per cent is as much as $1.4 billion in additional bank profit."
He said the banks had already made record profits, with figures from the Australian Prudential Regulation Authority showing banks made $23.5 billion in profit over the year to March 2008.
"Already more than $2 for every $100 spent in Australia ends up as after-tax profits for the banks," he said.
According to the banks, current economic conditions have substantially increased their wholesale funding costs.
But Mr Richardson argues that under Australian Stock Exchange listing rules, listed entities are required to disclose immediately to the ASX any information that might affect the price of their securities.
"If anything serious was happening to banks' funding costs, it would appear they should have been making announcements to the stock exchange given the listing rules," Mr Richardson said.
"None of the big five banks made any such statements to the stock exchange over the month prior to the RBA cut."
- © AAP
