Watchdog to probe banks for burning savers

The big four banks hold $1 trillion in deposits and have passed on all rate increases to borrowers – but the watchdog wants to know why savers have been dudded.

The competition watchdog has started taking the pulse of industry and consumers on how banks benefit on interest rate decisions and why they have not increased rates for savers as quickly as they have for home loan borrowers.

Following a request from the Treasurer in February, the Australian Competition & Consumer Commission on Friday called for public submissions for its review of competition in the $1.4 trillion retail deposit market by 19 May.

It will send banks, who have previously vowed to co-operate with the regulator, compulsory notices asking them for information on their interest rate decisions in coming weeks.

The Reserve Bank of Australia increased base rates 10 consecutive times in the past year from an all time low of 0.1 per cent to 3.6 per cent, before pausing this month.

Banks, including the big four majors – which hold 73 per cent of all household deposits – quickly passed on all of the increases to home loan borrowers but did not do the same for savers.

This has protected their margins but is hurting savers at a time of rising inflation.

The probe follows calls from politicians for banks to pass on to savers the benefits from higher cash rates as quickly as they pass them to mortgage holders.

“For many Australians, the interest earned on these accounts is an important source of income, and consumers are understandably keen to ensure they are receiving a good return on their savings,” ACCC Chair Gina Cass-Gottlieb said.

The big four banks have passed on all of the increases to home loan borrowers but have not done the same for savers.

The inquiry will become an important source of information for industry and bank customers, and could lead to considerations for policy reform by government, Ms Cass-Gottlieb said.

It will dig into how banks benefit from their decisions on the interest rates they offer customers for deposits and those they charge for home loans, as well as the timing and execution of those decisions.

“We are eager to hear about competition and consumer issues affecting the supply of retail deposit products to Australian consumers and self-managed super funds,” Cass-Gottlieb said.

“This inquiry will closely examine how banks make decisions on interest rates, and any barriers consumers face in getting a better deal”.

The banking lobby on Friday said there was strong competition from banks on deposit rates, with interest paid to deposit holders increasing substantially following cash rate movements.

“Australia’s banks look forward to assisting the ACCC with its inquiry and contributing to the discussion as part of the submission process.” Australian Banking Association chief executive officer Anna Bligh said.

The ACCC inquiry will cover savings accounts, term deposits, transaction accounts including home loan offset accounts and self-managed superannuation fund accounts, and will exclude business accounts.

The regulator will also consider the role of deposits on the bank’s overall funding mix.

In 2018, an inquiry into banking competition found the four major banks – CBA, ANZ, NAB and Westpac – had substantial pricing power that allowed them to set interest rates in a way that protected their profits “without significant loss of market share”.

The interest rate for an average owner-occupier variable $500,000 home loan has more than doubled to about 6.4 per cent, from 2.9 per cent last April, reflecting the full 3.5 per cent increase to the cash rate by the RBA. Meanwhile, existing customers with deposit accounts have only seen an average increase of 1.98 per cent, according to Canstar.

The ACCC report will be handed to the Treasurer by 1 December.