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Westpac raises rates with unfettered confidence

December 2, 2009

Opinion

THE banks are in the business of lending money. But their real mission is to make money - out of us. And they're very good at it.

Why did Westpac almost double the Reserve Bank's interest rate rise when it passed it on to mortgage loans yesterday? Because it could. It's probably got a pretty good idea that the other banks won't embarrass it by holding their rates down. And the non-banks can't raise money, so they have none to lend.

Sure, as Westpac points out, it now costs them far more to borrow money than it used to. Reserve Bank assistant governor Guy Debelle noted last month that bank margins on home loans had declined, because banks had raised their mortgage rates less than the rise in rates they had to pay to depositors and financial markets.

But, Debelle added, ''this has been more than offset by a widening in business and personal loan margins, so that overall bank margins have widened''.

And Westpac has just reported an annual profit of $4.62 billion, down just 8 per cent in a year of financial crisis.

Its action takes attention away from the Reserve's own questionable rate rise, its third in three months. Governor Glenn Stevens is very confident that the crisis is over, and therefore rates should bound back. The Reserve has a lot of good sources the rest of us don't have. You hope he is right.

But this recovery is still patchy and fragile. The global recovery is even more so, with no guarantee it will last.

The Reserve promised us its rate rises would be gradual. That's a promise it should have kept.

Tim Colebatch is Age economics editor.

6 comments

  • Sack Graham Samuel immediately.
    Then break up Westpac and recreate St George as an independent entity.

    Commenter
    ej
    Location
    sydney
    Date and time
    December 02, 2009, 7:26AM

  • The bank has every right to set their own rates.

    It is simple......don't borrow more than you can afford, factor in fluctuations in rate rises and be accountable for YOUR decision. If you don't like it seek a better deal elsewhere.
    .............or we could go back to the "good old days" of state run banks like in Zimbabwe and Iceland.

    The fact is that just as many people are affected by low rates as rising rates, the difference is that those affected by rising rates have over committed themselves with 100% mortgages, 2 car loans and $20000 credit cards. It isn't a free ride.

    Commenter
    Mark W
    Location
    Melbourne
    Date and time
    December 02, 2009, 9:29AM

  • Mark W is completely right the Banks are a business and as such need to make a profit. They are not a social service if you don't want to pay them interest don't borrow from them rent instead.

    The bank rates and RBA rates are not linked especially as the banks source alot of funds overseas, this funding is more expensive then previously.. Also competition for desposits is another factor in forcing up rates. Would you rather all the banks keep rates so low they all go broke and require billion dollar tax payer bailouts?

    Furthermore I will point out the RBA accepts the banks are justified in rising rates. I bet Wayne Swan also knows they are justified in doing this but obviously he won't admit that in public. His populist bank bashing is a vote winner with the economic ignorants.

    Commenter
    Sam
    Location
    Parkdale
    Date and time
    December 02, 2009, 9:58AM

  • Yes, The banks are a business, and as such have a right to make profits to the tune the market will bear. The banking system, however is not so much a business any more, rather a peice of infrastructure that you can ot eacape - an essential service. If there was a genuine alternative to a bank (getting wages in cash, etc etc), I would be a little more circumspect. When you turn a system into an essential service for profit, I think we have a problem. Then again, that's the way we've gone with everyhting else so why would we not have to "suck it up" on this one too.

    Commenter
    AH
    Date and time
    December 02, 2009, 1:42PM

  • "Or we could go back to the 'good old days' of state run banks like in Zimbabwe and Iceland"

    That's what I like about free-marketeers: their ability to speak with great authority and absolute conviction about things they know nothing about.

    Glitnir, Landsbanki, and Kaupthing banks were the three major PRIVATELY owned and run banks in Iceland, and together they owed around 6 times the country's GDP (according to the BBC). They became state owned, after their management very efficiently crashed them against a wall.

    Of course, in Australia things are different. After all, we have 4 gigantic quasi-monopolic/near-ologopolic banks, not 3.

    Mark W and Sam: you both are wrong.

    Commenter
    MarcoTheCommie
    Location
    The Sydney Swans are commies...
    Date and time
    December 02, 2009, 1:23PM

  • Not in the least, government is to blame; for selling the Commonwealth Bank, which could have acted as a bulwark against unconscionable greed by all other banks. Congratulations, Paul Keating.

    After 80 years in public hands, it was a Labourite ("Labouright" is more apt) who sold the "People's Bank" in 1992 by taking it away from, in present terms, 22 million Australian citizens - overall some 50 million Australians who've used this icon since 1912 - and handing it to 700,000 shareholders. Ever since, it's been 'open season' for our banks to make ever-greater killings.

    In debating the Commonwealth Bank Bill in November 1911, Prime Minister Fisher referred to those who ran private banks as "imbeciles."

    How is it, by the way, that interest rates in the last 12 months remained at 0.25 per cent in the USA but Australia's rate hovered been between 3 and 4 per cent? On top of that, house prices (and bank mortgages) in "fair go" Australia are 2 to 3 times that of the USA, twice as much as in the UK and NZ, etc? What's so special about Australia?

    Commenter
    Quonishant
    Date and time
    December 03, 2009, 5:04PM
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