The big banks were hit with the budget stick last night – and they didn’t see it coming. Scott Morrison announced a levy on the big five banks, which will raise $6.2 billion over four years for budget repair.
The levy applies to Westpac, ANZ, Commonwealth Bank, National Australia Bank, and Macquarie Group.
Australian banks are some of the most profitable banks in the world and crying poor when they record more than $30billion in profits this year, won’t go down well with the average Australian.
So, we know they have the money to pay the levy, but will they re-appropriate the funds from customers, shareholders or staff to ensure their profit margins don’t take a hit?
Will the bank levy trigger an interest rate rise?
It’s unlikely that we will see a direct correlation to the bank levy in our interest rates. Here’s why.
- Big banks have already started increasing interest rates
- Second tier and boutique lenders aren’t affected by the bank levy and will keep interest rates competitive
- Retail Banking Remuneration Review changes will reduce bank staff bonuses and remuneration
Interest rates already on the rise
Home loan interest rates have been increasing for the last 6 months even without a change to the official cash rate, so it’s likely that standard variable and fixed interest rate increases will continue to fluctuate in response to the market and APRA changes.
We called it last year, 2017 is the year of the fixed interest rate. Standard variable and fixed interest rates started increasing more rapidly last month following tighter restrictions by APRA to restrict interest only residential lending, well before the budget announcement. The banks took the opportunity to make a few tweaks to interest rates without the Reserve Bank triggering a rate increase.
2nd tier lenders not affected by bank levy
2nd tier and boutique lenders won’t be affected by the bank levy as it only affects banks with liabilities (debts) above $100 billion.
During an interview with the ABC last night Treasurer Scott Morrison pointed out smaller and regional banks would not be affected and said any Australians who weren’t happy or felt they were getting a raw deal should go to another bank.
2nd tier lenders are already proving a more popular option with borrowers as the need for branches and traditional banking methods decrease. Boutique lenders certainly have an appetite for new loans for both owner occupied and investors and a wide variety of products to suit most needs. Borrowers should consider 2nd tier lenders as an option if they are concerned they aren’t getting the best deal from the big banks.
Retail bank staff remuneration review underway
There are more changes afoot to the mortgage and home loan market. Most consumers are unaware of the Sedgwick report that was handed down last month recommending significant changes to how home loans are sold and staff remunerated within retail bank.
Most of the banks are currently reviewing how they remunerate their home loan sales staff and pay commissions in line with the report which is expected to see a decrease in payments to staff. Our bank insiders are telling us that the big banks have already implemented changes that have reduced staff bonuses and commission payments. Separate to the recent Sedgwick recommended changes, the banks have implemented tougher KPIs and bonus gate openers for bank staff over the last six months. The future changes to remuneration is likely to improve the banks’ P&L.
Essentially with all the changes that are happening within the banking and finance segment, borrowers shouldn’t be concerned by the bank levy. However, banking staff and shareholders may well feel the pinch as the banks attempt to recover the loss in profit.