CBA Customer Satisfaction Ratings Continue To Slip
Australian banking major CBA is facing a backlash from its mortgage borrowers, after the lenders satisfaction ratings took another dip during January.
CBA’s poor result is the latest in a series of losses by the big four lenders, who have seen their efforts at winning over their customers through the cutting of fees undermined.
NAB managed to buck the trend holding ground in terms of its customer satisfaction rating during January, however the lender continues to lag its rivals based on that measure despite making gains over the last 12 months driven by a strategy of using discounted mortgages to win market share.
The customer satisfaction data was compiled by market research firm Roy Morgan Research and suggests that ANZ led the major banks in terms of customer satisfaction ratings declines, having fallen by 1.2 per cent, exceeding CBA’s 0.8 per cent decline in customer satisfaction.
ANZ’s poor result came primarily from non mortgage customers, with CBA’s fall largely driven by its mortgage customers.
CBA faced a political and consumer backlash in November last year, when it chose to raise its standard variable mortgage rate by nearly double the official rise in interest rates enacted by the central bank.
CBA’s decline in customer satisfaction ratings is means far more than simply a loss of pride for the lender. Half of the lenders senior executives have their long terms bonuses, worth millions of dollars tied to an improvement in customer satisfaction ratings.
The drop in satisfaction means more than a loss of pride for CBA. About half its executives have long-term bonuses worth millions of dollars linked to improved ratings.
Westpac, which last year overtook CBA for the second spot in satisfaction, dropped 0.2 percentage points in January to 74.1 per cent.
CBA is third at 72.7 per cent, while NAB which rose 0.1 percentage points during January is 71.8 per cent.
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NAB Intensifies War For Australian Home Loan Customers
Australian banking major NAB has launched an all out assault on its big four rivals, urging customers to dump their banks.
NAB escalated what appears to be an intensifying war between big four lenders for borrowers. The lender is estimated to have spent several million dollars on its campaign which was launched on Valentine’s Day and using the slogan which appeared in several newspapers which said “It’s over between us.”
The campaign was launched on Monday, when actors pretending to be couples were placed in bars and restaurants around Australia, and then staged noisy break ups over issues such as hidden bank fees.
Videos of the fake break ups were then posted on YouTube on Wednesday, with full page advertisements appearing in newspapers.
NAB executive director for corporate affairs and marketing, Andrew Harger, said the campaign was an attempt by the lender to break away from its big four label, because it no longer wished to be associated with its rivals.
Federal Treasurer Wayne Swan welcomed the campaign, saying it suggests that competition has returned to the Australian banking industry.
In its advertisements NAB claims that its mortgage borrowers have saved a collective $115 million in interest on its 7.67 per cent standard variable rate compared with CBA mortgage borrowers who are faced with a 7.81 per cent standard variable rate.
Mr. Swan said that more intense competition between the big four lenders would be good news for their mortgage borrowers.
“I think it’s terrific to see the NAB throwing down the gauntlet to the other big banks. It’s about time they had a scrap . . . We need to see more competition.” Mr. Swan
Westpac was the first big four lender to respond to NAB’s decision to cover the exit fees for customers who switch their bank, and has dropped as much as $995 in fees from its Premier Advantage mortgage product.
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Westpac To Get Aggressive In Emerging War For Home Loans
Australian banking major Westpac has fired its first salvo in an emerging and increasingly bitter war in the market for home loans, after the lender launched an aggressive discount campaign on Tuesday as it seeks to win new customers and expand its market share in the face of more intense competition from rivals.
Australia’s second largest lender in the latest twist to an increasingly bitter battle for market share was responding to NAB’s revelation at the weekend, that it would pay the ext fees for CBA and Westpac borrowers who switch their mortgages to NAB.
According to The Australian , which obtained an internal email, Westpac strongly criticized the move by NAB and has outlined a the contours of a strategy to deal with the threat including dramatic discounts on its Premier Advantage mortgage package.
Westpac will waive a number of fees associated with mortgage, such as the annual and establishment fees. The lender also intends to offer as much as 75 basis points in discounts on mortgages valued between $250,000 and $500,000, and as much as 80 basis points on home loans valued above $500,000.
Westpac will also no longer require borrowers who have an 80 to 85 per cent loan valuation ratio to take out mortgage insurance.
NAB has run a “fair value” strategy over the past 18 months to maintain the lowest standard variable rate of the four largest banks.
Its 7.67 per cent rate compares with Westpac’s 7.86 per cent, CBA’s. 7.81 per cent and ANZ’s 7.8 per cent.
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NAB Increases Home Loan Market Share Whilst Losing Deposits
Australian banking major National Australia Bank, which raised its interest rates by less than its big four rivals has managed to capitalize on that differential by increasing its mortgage lending market share, though as the expense of losing some of its deposits.
The Australian Prudential Regulation Authority (APRA) published December statistics earlier this week which showed that NAB has managed to capture some market share at the expense of its rivals with its “Fair Value” banking campaign.
Australia’s fourth largest lender by market capitalisation increased its mortgage portfolio by 1.3 per cent in December, compared with 0.2 per cent for CBA, 0.55 per cent for Westpac and 0.8 per cent for ANZ.
NAB’s mortgage book now consists of $105.5 billion in owner occupied home loans and $50.24 billion in investment loans.
CBA and Westpac Australia’s two largest mortgage lenders have deliberately slowed down their mortgage lending, after having rapidly expanded their portfolio during the economic slowdown.
A consumer backlash against CBA, which raised its mortgage lending rates by nearly double the move by the central bank was also a reason for the slowdown in mortgage lending by Australia’s largest bank.
NAB has the equal cheapest standard variable rate among the majors at 7.67 per cent, with ANZ, compared with Westpac’s 7.86 per cent and CBA’s 7.81 per cent.
The data from APRA also suggests that contrastingly NAB experienced a marked drop in the level of its deposits which fell by 1.8 per cent in December or by $5 billion.
However deposits across all Australian banks grew by 18 per cent on an annualized basis for the month, whilst corporate deposits rose by 13 per cent.
Global credit ratings agency Fitch released a report this week which said that banks in the Asia Pacific Region continued to remain amongst the most stable in the world and highlighted Australian lenders as being in strong shape despite the potential that their earnings growth would fall this year.
“The improvements in profitability in 2010 have been heavily influenced by lower impairment charges and asset quality stabilizing. There is less scope for reductions in these charges in 2011, which together with modest top line growth suggests that return on equity and assets will not improve significantly.” Fitch analyst John Miles said.
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Competition For Australian Deposits Less Intense
The battle for deposits amongst Australian lenders seems to be petering out, with only two of the country’s top online savings accounts passing on November’s interest rate hike by the Reserve Bank of Australia, to their customers in full.
Despite failing to pass on the interest rate increase to depositors, bank’s continue to make the argument that higher funding costs are the reason behind higher interest rates which have been passed onto borrowers in excess of official rate hikes by the central bank.
Most of Australia’s online banks have declined to pass on the 25 basis point rate hike to their customers, with some of them even doing the opposite and cutting their promotional rates.
Virgin Money cut its promotional rate by 24 basis points for its online savings account at the start of the week, when this cut is bundled together with the 25 basis point rate hike enacted by the central bank, the effective rate cut equates to 49 basis points.
Bankwest continues to offer the highest promotional online interest rate of 7 per cent despite failing to pass on the interest rate increase to its customers.
ANZ did pass on the rate hike to its customers and currently offers a 6.25 per cent interest rate to all its savings accounts, whilst Westpac and CBA did so only for their highest interest accounts.
Since the financial crisis in 2008, a dramatic battle for deposits erupted between Australian banks, as they sought to diversify away from wholesale international funding markets which are volatile and froze during the crisis, to a more stable depositor based funding.
The latest moves by lenders not to pass on rate hikes to their depositors implies that the intensity of competition between lenders is levelling off.
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RBA Says Decision To Hold Rates Driven By Restraint In Consumption And Borrowing
According to the minutes of the most recent board meeting of the Reserve Bank of Australia, the decision by the central bank to hold interest rates steady was driven by restrain in both household consumption and borrowing.
The notes from the meeting however failed to indicate the central bank’s bias on interest rate policy over the next few months and only suggests that the RBA was content with the current interest rate level.
At the start of the month the central bank chose to hold interest rates steady at 4.75 per cent, having lifted the rate from 4.5 per cent in November.
“Employment growth remained strong and the expected pick up in private investment looked to be broadly on track,” the minutes said.
The central bank governing board took note of the fact that despite confidence in the Australian economy, consumption and borrowing remained restrained whilst the household savings rate has risen.
“This restraint, if it continued, would provide some scope for investment to rise without causing aggregate demand to grow too quickly and inflationary pressures to build.”
In maintaining the interest rate at its current level, the RBA considered the impact of the high value of the Australian dollar and interest rate rises by commercial banks.
“Following the board’s decision in November, the decision to lift the cash rate and the subsequent increases in lending rates, and taking into account the level of the exchange rate, monetary policy was judged to be mildly restrictive. Given the very high level of the terms of trade and the positive outlook for business investment, this policy setting was regarded as appropriate.”
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ANZ Boss Mike Smith Latest Banking Chieftain To Rail Against Bank Bashing
Mike Smith, chief executive of Australian banking major ANZ is the latest banking chieftain to rail against bank bashing, once again justifying ANZ’s interest rate policy as one being driven by the “permanently higher” costs of doing business.
Mr. Smith made his comments during the lenders annual general meeting last week and followed similar comments made by ANZ chairman John Morschel who defended ANZ’s decision to lift its interest rates by 120 basis points over and above official interest rate rises since the start of the global financial crisis.
“We believe our mortgages are fairly priced in line with costs and risks,” Mr Morschel said.
Mr. Smith, who made an appearance before the Senate inquiry into competition within the banking industry last week warned of the negative consequences of populist backlash against Australia’s most successful industries including mining, telecoms and banking.
“We support practical measures which will increase competition and consumer choice, without increasing the cost of banking. We also believe it’s important to have a discussion where facts and sound analysis are put on the table, not opinions and empty rhetoric. A critical issue that we have to face up to is the fact that banks now have permanently higher funding costs.” he said.
Mr. Smith also warned that it was apparent that the global economy still faced substantial risk for the recent instability in the Euro Zone region, and re-iterated Mr. Morshcel’s view that whilst the pace of Australian economic expansion was likely to be faster than other developed countries, it was still subject to similar volatility as the US and Europe.
“This includes potential volatility in our funding costs,” Mr Smith said.
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ANZ Strongly Defends Its Interest Rate Policy To Law Makers
Australian banking major ANZ has come out in strong defence of its interest rate policy, after raising them higher than the official rate hike. The lender says it needed to pass on higher funding costs in order to maintain its profitability.
ANZ made its case in a submission to the Senate inquiry investigating competition within the banking industry, and was more vociferous that its rivals in defending its super sized rate hikes which it began implementing in 2008.
“Had we not passed through these cost increases, the rate of return on the capital employed in that area of ANZ’s business would have fallen to levels unacceptable to the investors who provide us with capital, and a rational outcome would be reduced lending or credit rationing. Indeed, had we not passed on any of these increases, the mortgage portfolio would have been operating at a loss.” ANZ said.
ANZ says its net interest margins will continue to face pressure for the next year and a half as it rolls over funding raised prior to the financial crisis, in to debt priced at the current more expensive rate.
ANZ rejected criticism that its strategy of expanding into riskier Asian markets, as it seeks to transform into a super regional lender posed a risk to financial stability in the country.
ANZ argued that its strategy of diversification did the opposite, and its presence across 14 Asian economies mitigated risk. The lender pointed to higher savings rates in Asian countries which provided a new source of funding for the bank during a period when the overall environment for fund raising remains costly as a consequence of the financial crisis.
ANZ added that its international businesses were required to comply with Australian prudential standards.
In defending its position, ANZ said that whilst industry absolute profit numbers were indeed large, they did not represent an excessive return on equity. Justifying its position further the lender cited the common argument made by all the big four lenders, that it had not required government bailout money during the crisis.
According to ANZ, its use of the wholesale funding guarantee meant that it paid $2.1 billion in fees to the government so far, a figure that is expected to grow to $5.5 billion by the time all the sovereign guaranteed debt it issued matures by 2015.
ANZ made its argument ahead of the release of government proposals for banking reforms, which are expected any day now.
The reform proposals are designed to increase the level of competition within the Australian banking industry, a sector where the big four banking groups control 75 per cent of the market.
ANZ says it would back any proposal for the government to support the securitisation market, proposals which would allow lenders to issue covered bonds (bonds backed by high quality mortgages), and any proposal designed to increase the number of funding options available to banks.
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Smaller Australian Banks Offer Loyalty Interest Rate Discounts To Mortgage Borrowers
Smaller Australian lenders have begun offering rewards to mortgage borrowers who stay loyal to their bank by offering discounts to home loan interest rates which can be as high as 0.75 per cent.
Smaller banks are seeking to retain their existing customers and are pushing harder to earn their loyalty by rewarding loyal customers with significant discounts on their borrowing rates.
The move by the smaller banks comes against a backdrop of negative public sentiment towards the big four lenders, who angered many with the size of their most recent rate increases, which were higher than the official hike in interest rates implemented by the Reserve Bank of Australia.
Discounts are being offered by Bankwest (a unit of CBA), HSBC, Credit Union of Australia, State Custodians Mortgage Company and ECU Australia.
Currently HSBC offers the highest level discounts amongst the six lenders offering them, with borrowers receiving a 0.25 per cent discount of the standard variable rate after the first year, followed by another half a per cent off after the second year, under the HSBC’s Home Rewards Loan program.
Market watchers believe that as the government cracks down on early exit charges, and interest rates continue to rise, borrowers will have a greater incentive to shop around for the best deal. In order to pre-empt any exodus of customers, the lenders have embarked a strategy of offering discounts to borrowers who stay loyal to their lender as they seek to hold on to customers for longer.
Discounts on interest rates over time is an effective alternative to exit fees and provide smaller lenders with a great mechanism in retaining their customers.
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Australians Saving The Most In Over Two Decades Against A Backdrop Of Slower Economic Growth
As interest rates have steadily risen over the last year, new data shows that ordinary Australians are saving the most they ever have in two decades. Economists attribute the trend to being as a result of consumer concern over the direction of interest rates and the future trajectory of the economy.
National income accounts data which was released on Wednesday shows that growth of the Australian economy slowed down during the September, expanding by a moribund 0.2 per cent, the slowest recorded level since the end of 2008, when the financial crisis was at its greatest, and the fifth slowest recorded growth rate since 2000.
Consensus growth forecasts by a majority of economists had been 0.5 per cent, and the sluggish result is likely to compel the central bank to hold interest rates steady until well into 2011.
The GDP data and the prospect of steady interest rates resulted in a sharp fall in the value of the Australian dollar against the US dollar, with the futures markets pricing in a 3 per cent probability of the Reserve Bank of Australia cutting interest rates during its final board meeting of the year scheduled next week.
Australian households however seem to be saving more, with the savings rate the highest it has been since 1987 excluding the period of last year’s fiscal stimulus.
The Australian household savings rate touched 10.2 per cent during the September quarter, sharply higher than the 8.2 per cent recorded during the previous quarter.
Savanth Sebastian an economist with CommSec Securities was quoted in The Australian as saying that the reason behind the higher savings rate was an increased level of national income as a result of the resource boom.
“The extra dollars coming in aren’t being spent. Consumers and business are holding on to the cash until the economic recovery gains traction. The double-digit household savings ratio and weak private sector investment outside the mining sector adds weight to this argument.” Mr. Sebastian said.
Australian Prudential Regulation Authority (APRA) data released this week echoed the view that the savings rate had reached its highest level in two decades.
According to APRA household deposits placed with the big four banking groups rose by an annualized 8 per cent in October. Term deposits grew even faster, by 21 per cent over the last year according to the Reserve Bank of Australia.
The RBA figures show $422.4 billion was held in term deposits in October compared with $348bn last year.