As the big four ‘s decision on their stance regarding the Reserve Bank of Australia’s interest rate cuts becomes known to the public, one research centre suggests that the competition between the big four banks is actually just a “joke”.
A new report from The Australia Institute, The rise and rise of the big banks – Concentration of ownership, stated of a common ownership of the big four banks and the degree of common ownership seriously challenges the idea that the big four are engaged in fierce competition. Accordingly, the “examination of the top 20 shareholders in the banks’ annual reports shows that, on average, over 53 per cent of each big bank is owned by shareholders that are among the top 20 shareholders in all the big banks. Moreover, ownership figures for the second tier banks, the big three regionals – Bendigo and Adelaide Bank Limited, Suncorp-Metway Limited and Bank of Queensland Limited – show they are also owned by the same organisations that own the big four.”
Australia’s banking industry is one of the most profitable industries in the world and the big four banks apparently belong to the eight most profitable banks in the world. The common ownership of the major banks is something to worry about as the potential to further profits is always present and make them act more like a monopoly going after a common goal.
The major banks however dismiss the allegations claiming that despite the profits, the money still goes back to ordinary Australian shareholders as dividends despite the fact that more than 90% of Australians do not directly own share. Senior research fellow, David Richardson, said, “The big four banks make more than $1,460 profit from every man, woman and child in Australia. They argue that these profits flow largely to mums and dads with superannuation, but our analysis calculates that the average superannuant gets just $142 per annum.”
With home loans alone, research claimed that “the cheapest of the big four banks was a good deal more expensive than many individual mutual banks, credit unions and building societies and was more expensive than the average of those institutions by 40 basis points. If the present interest rate differential were to persist over time then the average mutual bank, credit union and building society customer would save $7,163.76 over the life of the loan for every $100,000 they borrowed. That is the equivalent of $23.87 per month.”
It seems that the competition bankers talk about is their competition for customers as they spend huge amounts on advertising and designing new products and processes. They avoid price competition by “making financial products look very complex so that consumers find it difficult to compare prices between sellers” or “promote different ‘brands’ despite being owned by the same parent company, in part to attract customers who ‘do not want to bank with a major bank’.”