Bank lending margins on the rise

Lending margins are higher now than they were three years ago, despite the banks claiming that they have dropped and using this as a justification for raising bank fees.

Figures from the Reserve Bank show that despite a high level of competition in home lending, the banks' margins on mortgage interest rates had risen since the start of 1999 by between 0.05 and 0.2 percentage points. The margins on small business loans and overdrafts have also risen over the last three years, by between 0.3 and 0.55 percentage points. Banks increased their lending margins while interest rates rose in 2000 and this continued during last year's rate decreases, the RBA said.

Chris Connolly, from the University of NSW's Financial Services Consumer Policy Centre, says that borrowers are being hit by the “double whammy” of higher fees plus rising interest rate margins. The banks have been justifying their fees increases over the past couple of years by stating that interest rate margins have improved for consumers – but the Reserve's figures show they've been rising, not falling. The banks can't now claim that fee hikes are justified due to shrinking interest rate margins, he said.

But the CEO of the Australian Bankers' Association, David Bell, said that the Reserve's “short-run data” may not reflect the real situation. There's been a steady fall in bank lending margins since the mid-1990s up till now, he stated, and there's no indication that bank margins are going back up to their mid-1990 levels.