Axing of ‘foreign’ ATM fee to have trivial impact on banks’ bottom line: Deutsche

The decision to scrap fees on “foreign” ATM withdrawals will have a negligible impact on the banks’ profit, says Deutsche.

Three of the big four banks' ATMs. (Picture: iStock)

The decision by the four major banks to stop charging fees for foreign bank ATM withdrawals will have a negligible impact on profit, Deutsche Bank says.

In a report released today, Deutsche said the move indicates that political pressure on the banking sector remains following recent “mishaps” around conduct and consumer protection.

NAB, Westpac and ANZ quickly followed the Commonwealth Bank’s lead on Sunday and announced they too would axe withdrawal fees for non-bank customers.

Deutsche said the move will have a negligible impact on profit as the major banks each only generate less than $40m in revenue from foreign ATM withdrawals.

“This translates into a small impact on earnings, of around 0.2 and 0.3 per cent a year,” the report said.

“This move appears to be driven by a desire to improve public opinion of the bank sector, by removing an unpopular form of bank fees.”

Research by Macquarie Wealth management also noted that the move spurred by Commonwealth Bank is likely to have been aimed at improving its reputation given recent events. But it also said it is unlikely the move will alter their price to earnings ratios.

“With the threat of a royal commission remaining an overhang and CBA looking to restore its image, we see limited scope for banks to rerate despite the relatively favourable current earnings backdrop,” Macquarie said.

“We believe the current operating environment remains favourable for the majors, underpinned by lower funding costs, mortgage repricing benefits and benign credit conditions.

“This should provide support for share prices in the near-term.”

ATM fees have been a declining source of revenue for the big banks as the use of cashless payments has increased.

According to Deutsche research, the number of ATM withdrawals from foreign bank ATMs has been declining as usage has declined. In the year to July, there were 252 million ATM transactions, five per cent fewer than a year ago.

Deutsche Bank said that while in the short term, consumers will benefit from the removal of fees, it may have adverse effects in the long term.

“There are possibly lesser incentives for the owners of ATMs to continue to invest in and maintain their networks, given that a large proprietary network is now no longer a point of competitive advantage,” it said.

Macquarie Bank noted that smaller banks with smaller ATM footprints would also benefit from the change, “as their customers gain access to wider ATM networks at no additional cost”.