Banks losing business following rate hikes

Banks have shot themselves in the foot with their recent rate hikes, according to one industry figure, who suggests that consumers are tiring of footing the bill for perceived excesses in the banking industry.

According to Troy Phillips, director of Sydney-based FirstPoint Mortgage Brokers, banks are losing business as a result of upping their rates on borrowers in response to increased capital requirements, rather than seeking internal cost efficiencies to bolster their cash position.

The latest AFG Competition Index also reveals that the major banks' share of broker-originated home loans fell from 73.2 per cent in October to 69.7 per cent in November.

“I’m talking to brokers who are saying ‘No, I’m going to deal with the small lenders now’, simply because you see the major banks punching out $8 billion profits and … they certainly look like they are run for the senior executives and for the shareholders. Does the customer even get a real say?” Mr Phillips told Mortgage Business.

Instead of slugging customers with rate rises, Mr Phillips suggested that, particularly at a time when the Reserve Bank is maintaining an easing bias given the broader economic outlook, banks should look for efficiencies within their own ranks.

“There is actually an easy way not to take an extra 20 basis points from consumers – cut the guts out of excessive cost lines. I think if you looked at shareholder voting this year, even they agree,” he said.

“Senior bankers are becoming overpaid in Australia for what they deal with, given their footprint and hold on such a small market. And it’s pretty hard to stuff up a bank that has been going for 200 years. God knows history shows there has been a few attempts and they still managed to rise.”

The comments come after JP Morgan’s executive director of Australian equities research, Scott Manning, told the Australian Securitisation forum in early December that home loan repricing was an “unsustainable’ strategy for banks.

“Banks have been using a very blunt instrument to date in terms of simply repricing the whole portfolio,” he said.

“I think you can get away with that once. I’m not necessarily sure that is a sustainable view going forward.

“The cost-to-income ratios today are where they are not because they are efficient, but because the average amount borrowed has gone up as interest rates have gone down. As that starts to cap out, I think you’ve got to refocus on the risk that’s in your book … but more importantly your cost base as well.”

[Related: Home loan repricing ‘unsustainable’, says J.P. Morgan]

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Adam Zuchetti

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