The Chairman and CEO of non-major bank MyState has fired back at the federal government over its criticism of banks not passing on interest rate cuts in full.
“Instead of scoring points by bank bashing the government needs to focus on the harder task of enabling a competitive environment in which more than four banks are able to compete effectively,” MyState CEO Melos Sulicich said at the company’s annual general meeting on Thursday.
His comments come after Treasurer Josh Frydenberg criticised the big four banks for failing to pass on the Reserve Bank’s three recent cash rate cuts in full to home loan borrowers and asking the ACCC to launch an inquiry into mortgage pricing.
Mr Sulicich said the government’s criticism failed to recognise banks needed to balance competing interests.
“Borrowers want the lowest possible interest rates on loans, depositors want the highest interest rate on their deposits and shareholders have a right to expect a reasonable return for their capital that facilitates the whole banking process,” Mr Sulicich said.
While none of the big four banks and very few smaller lenders passed on the October 25 basis point cut to borrowers in full, each of the major banks and many smaller lenders have passed on the entire 25 point cut to their savings accounts rates.
Mr Sulicich said not passing on the full rate cut to home loans was necessary to ensure the “sustainability” of the bank.
“We are operating in a low and falling interest rate environment, the likes of which we have never seen before. This is challenging and our recent decision not to pass on the full rate cut was necessary to ensure the sustainability of our business,” he said.
“With interest rates nearing zero and even moving into negative territory in some developed countries, it will be increasingly difficult for Australian banks continue to pay depositors positive interest rates for their money or a dividend that recognises investors’ cost of capital.”
Mr Sulicich said smaller banks are constrained by entrenched regulation that favours the bigger banks.
“Smaller banks’ ability to compete has been crimped as we need to hold more capital on the same loans and funding is more expensive,” Mr Sulicich said.
“In our opinion, the banking environment and competitive and regulatory landscape remains tilted away from smaller banks like MyState. We need to hold more capital than the larger banks for similar loans and the larger banks still receive funding cost advantages due to an implicit government guarantee.
“This reduces smaller banks’ ability to earn a return and compete for customers. We continue to talk to the government and regulators to find ways to address this imbalance.”
Looking for a low variable rate home loan? The table below displays owner-occupier products which may represent the best of the big four banks, best of the top 10 customer-owned banks and the best of the larger non-banks.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) owner-occupied home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
- If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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