Insolvency Experts

THE Reserve Bank has suggested the major banks may be profiteering from their recent round of interest rate increases, arguing moves on lending rates over the past two years have been outpacing funding costs.

The RBA’s comments appear to debunk warnings by banking executives that high funding costs continue to pressure mortgage rates.

The RBA comments come amid signs that households are starting to feel the squeeze on mortgages follow a string of rate rises since October.

In an analysis of bank interest rate movements, the RBA says the major banks are the worst offenders when it comes to excess pricing, with lending rates outpacing rises in funding costs by as much as 25 basis points since the onset of the credit crisis, equal to billions of dollars in additional revenue.

Recent earnings updates among the big four banks showed they have emerged from the financial crisis among the best-performing in the world with combined profits expected to exceed $20 billion this year.

“For the major banks, the increases in lending rates have more than fully offset their higher funding costs,” the RBA said.

Profit updates by the big banks have revealed that interest margins – the difference between the cost of funding and lending – have returned to levels last seen in mid-2007, before the economic crisis hit.

Banks maintain the rise in margins is due to them passing on higher rates to business customers but the RBA report rubbishes these claims.

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