Banks Profiting From Increased Fees on Business and Personal Loans

Australian banks have made quite a huge profit from their customers in the last financial year. Collectively they amassed $12.7 billion in income from fees, which is up to 9% on the preceding 12 months based on official calculations. The bulk of the growth in charges was carried by the business sector producing a 20% increase n fee income. This comes despite the corporate sectors’ flat lending growth.

The increase in fee charges on current loans burdened the business sector since banks were re-pricing their loan books to cover the higher funding costs. This was disclosed by the Reserve Bank on its June quarter bulletin. Businesses that have only utilized a portion of their loan facilities were the most burdened according to the RBA.  Undrawn loan facilities have significantly increased fees.

On the other hand, the calculations of the central bank have shown that households were paying $5 billion in fees on their home and personal loans to their banks for the years 2008-09. This increased up to 3% during the last year. There were higher fees charged on credit cards as well.  Households having all home and personal loans and maintaining several credit cards will be the hardest hit as higher fees will be charged simultaneously.

Home loans charge fees that increased by 17% to $1.235 billion. More and more customers are undergoing re-financing, shifting from fixed-rate to variable-rate loans since borrowing interest rates are dropping. Fee income on personal loans from households also rose by 14% with income from credit cards usage increasing by 8%.

Furthermore according to the Reserve Bank, Australian banks in the June quarter were very reluctant to lend. If banks will not lend, it could have a negative impact on the economy. The Australian Bureau of Statistics released their findings wherein the total lending finance has shown a drop by 12% to $49.6 billion for March of this year as compared to the %56.4 billion in the same last year.

The additional fees that were imposed on businesses came after the buying of more loans from banks by large corporate. This happened during the global financial crisis when the capital market was clearly handicapped. Corporations needed the money to get through during the crisis.

Banks actually continued lending to households but not at the same rate or manner during the previous years. There was one stage that home loans grew by as much as 15%. Mid-year figures for this year place the housing lending growth rate at only 5%.

The high demand for deposits from the business sector means that fees on deposits were considerably flat. Meanwhile, lower transaction fees led to a decrease by 11% in fees for household deposits. Households shouldered 84% of the entire fees for bank exception or amounting to $1 billion, which remained unchanged on last year where the exception fees decreased by 6%. However, this was balanced by the 13% increase in fees for personal loans as well as credit cards.