The big banks have welcomed the competition watchdog inquiry into mortgage pricing, with ANZ chief executive Shayne Elliott admitting lenders have not properly explained why their rates do not keep pace with the tumbling cash rate.
Treasurer Josh Frydenberg on Monday announced the four majors will be probed over their failure to pass on Reserve Bank rate cuts in full to owner-occupiers amid a lack of transparency that means customers struggle to compare lenders.
The Australian Banking Association said members were working on making it easier for customers to take their business elsewhere, while ANZ and NAB both suggested the inquiry represented an opportunity to explain themselves.
“The inquiry is a good opportunity to provide facts in what is a complex space and we hope it will provide the public with renewed confidence in the way their home loans are priced,” Mr Elliott said.
“We know we have not done a good job in explaining our position and we will be working hard to ensure this process delivers results.”
Mr Elliott acknowledged cynicism among the public about how banks set home loan rates and said the Australian Competition and Consumer Commission, which will publish its interim report by March 30, could help address it.
NAB retail boss Mike Baird expressed a similar view.
“This is an important opportunity to discuss the challenges of an increasingly low interest rate environment and engage in a broader discussion about how we support all our customers – both depositors and borrowers,” the former Liberal NSW premier said.
The RBA cut the cash rate by a cumulative 0.75 percentage points between June and October, but Commonwealth Bank, Westpac, NAB and ANZ each cut their standard variable rate for owner-occupiers by an average of 57 basis points.
The ACCC will consider that gap and any obstacles that stop customers taking their business elsewhere.
Australian Banking Association chief executive Anna Bligh said banks were busy getting compliant with the Consumer Data Right – which will make it easier for customers to switch lenders – but were ready to assist the ACCC.
“Banks are no stranger to public scrutiny and look forward to the opportunity to cast more light on mortgage pricing and the many important factors that influence the setting of interest rates,” Ms Bligh said.
The ACCC will look at how rates paid by new customers compare to those for existing customers, how the cost of financing for banks has affected interest rates and why RBA cuts aren’t always passed on in full.
“We know from our first financial services inquiry that there is an unusually large difference between the headline rate and the actual rates many customers are paying, which can be confusing for consumers,” ACCC chair Rod Sims said.
“It is also very difficult for customers to find out what mortgage rate they could pay with another financial institution, without going through a lengthy and time consuming application process.”
Investors seemed unconcerned by news of the inquiry, driving up shares in the big four banks by between 0.79 and 1.24 per cent by 1125 AEDT.