Finance News: 15 Mar 2010
A Reserve Bank report estimates the major banks have enjoyed a 20 to 25 basis point increase in interest margins during the financial crisis...
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It is not the first time the RBA has put out a report showing how the big four banks have managed to maintain profits during the global financial crisis by subtly increasing the gap between funding costs and interest charged on loans.
This report again confirmed that it was business and unsecured personal borrowers that paid most towards the increase in margins.
Business lending rates rose about 2 percentage points relative to the official cash rate between 2007 and late 2009, and personal loan rates were up 3.4 percentage points compared with the Reserve Bank benchmark.
In contrast, variable home loan rates have only risen just over 1 percentage point relative to the cash rate.
The chief executive of the Australian Banker's Association, Steven Munchenberg, says that is because business loans and personal debt are much more risky than home loans.
"We know that lending to business of all forms, not just small business, is a risky proposition," he told ABC News Online.
"APRA [the banking regulator] requires the banks to hold three times the capital to cover business lending than it does to cover, say, mortgage lending, because it is that much more risky."
He also says the report also shows most of the increases above the cash rate have been due to higher funding costs.
"Over the last decade, bank margins have decreased by a full 2 per cent, which is a major decrease," he said.
"The increase that the Reserve Bank is reporting is 0.2 per cent, and they've also acknowledged that those margins appear to be narrowing already. As we move out of the crisis, we will return to a more normal situation."
SOURCE: ABC News
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