Regulators and policymakers expected to push banks on rate cuts, branch closures, and consumer services
The Australian government is expected to increase oversight of the banking sector this year, pushing lenders to sustain certain unprofitable services, according to a new report from S&P Global Ratings.
The report, which highlights growing political pressure on financial institutions to support consumers amid economic challenges, however, suggests that the financial impact on banks will likely be minimal due to manageable costs.
“Politicians are looking at banks to address bread-and-butter issues for households,” said S&P Global Ratings credit analyst Frank Dunne (pictured above). “These include the cost of servicing mortgages, access to physical bank branches and cash services, transparency on fees, and a general accountability by the industry to the public.”
Dunne also noted that the government is likely to pressure banks to fully pass on interest rate cuts from the Reserve Bank of Australia (RBA).
“Those that don’t risk a backlash from the government and the public, which could dent their reputation and customer loyalty,” he said.
According to comparison site Finder, Virgin Money is the only lender that has publicly stated it will not reduce rates following the latest RBA cash rate cut. Police Credit Union, meanwhile, is passing on the full 25-basis-point reduction to most of its loans but is reducing the rate on its most competitive variable loan by only 15 basis points.
S&P said public sentiment towards major banks has become increasingly critical, particularly as they continue to report multi-billion-dollar profits while many households struggle with rising living costs. Australia’s largest banks make up half of the country’s 10 most profitable corporations, and dissatisfaction often intensifies when interest rates are high.
At the same time, banks have been closing branches across the country as part of cost-cutting measures. A Senate committee investigating regional branch closures released its final report in May last year, urging the government to classify access to financial services as an essential service. The report recommended ensuring that all Australians, particularly those in regional areas, have reasonable access to banking services.
“We expect the government will continue to encourage banks to maintain regional branches,” Dunne said.
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