Banks’ mortgage rate balancing act fails to convince consumers

BIG banks are lifting their shareholders’ dividend payments while slugging borrowers with interest rate rises. But claim they’re balancing the needs of both.

Real Estate balancing act. Must credit Thinkstock

BIG banks are lifting their dividend payments to shareholders while slugging borrowers with interest rate rises, despite claiming they are balancing the needs of both.

The banks’ profit reporting season ended this week and all four of the majors have either increased or maintained their dividend payments.

They blamed regulatory changes for their surprise rate rises announced last month, and most said they were “balancing the interests” of borrowers and investors, but consumer advocates say it’s only the customers who are losing.

Bank dividends have fallen once in 25 years — during the Global Financial Crisis — after which they recovered within 18 months.

Loyalty to big four banks costs customers billions

Consumer group Choice wants a government review of bank competition.

“Despite what you hear from the industry, there is no balancing act between major bank shareholders and customers,” Choice spokesman Tom Godfrey said.

“Australia’s big banks are among the most profitable in the world. There is one-way traffic, where banks protect their profits at all costs, and customers lose out.

“Major banks rely on their customers’ reluctance to switch and the average Australian consumer gets a raw deal.”

The big four ... ANZ, NAB, Westpac and the Commonwealth Bank have all raised rates. Picture: AAP Image/Joel Carrett

Mortgage and consumer finance specialist Lisa Montgomery said people were feeling disheartened and should consider low mortgage rates offered by other lenders.

“A lot of people have a bunch of products with their financial institution and have a lot of loyalty, and many feel that the loyalty is disrespected in favour of shareholders,” she said.

“Eighty-five per cent of borrowers have their loan with a big four bank and the banks think only a small percentage will make a stand and take their loans somewhere else.”

Morningstar banking analyst David Ellis said shareholders had felt part of the pain from tougher regulatory requirements, with share prices falling on average 20 per cent this year and dividend growth weak or non-existent.

Big four banks rake in additional $125 million with rate hikes

“We are only forecasting a small increase in dividends in 2016, maybe two or three per cent, but importantly we are not forecasting a decline in dividends,” he said.

Mr Ellis said there was a “distinct possibility” that banks might raise interest rates again next year to cover rising regulatory costs, even if Reserve Bank did not change the cash rate.

Property investors and some people with interest only loans have been hit with two rate rises in recent months despite the Reserve Bank keeping the official interest rate on hold since May.

Ms Montgomery said only 60 per cent of lenders had passed on the last Reserve Bank rate cut in full.

“If you add up all the little bits that have been held back in the name of a strong banking sector, the borrower is suffering,” she said. Ten institutions had already lifted interest rates following Westpac’s announcement on October 14, she said.

The author owns bank shares.

WHAT THEY’VE SAID AND DONE

Westpac on October 14:

“We have sought to carefully balance the needs of our borrowers, depositors and our shareholders, as well as the competitive market we operate in.”

Standard variable interest rate up 0.2% to 5.68%

Final dividend up 2c to 94c

The Commonwealth Bank on October 22:

“Any decision to change interest rates is carefully considered. The cost of the new capital required to make the Australian banking system more secure needs to balance the interests of our customers, as well as the nearly 800,000 households who are direct shareholders.”

Standard variable interest rate up 0.15% to 5.6%

Final dividend up 4c to $2.22

NAB on October 23:

“We know we have to balance the interests of our customers with the needs of our more than 550,000 shareholders.”

Standard variable interest rate up 0.17% to 5.6%

Final dividend steady at 99c

ANZ on October 23:

“We are committed to working hard to keep lending rates as low as possible for customers and we’re pleased to have been able to maintain the lowest standard rate of the major banks for owner occupiers.”

Standard variable interest rate up 0.18% to 5.56%

Final dividend steady at 95c

Originally published as Banks’ mortgage rate balancing act fails to convince consumers