Aussie banks thrive, 'gouge' customers: analysts

Treasurer Wayne Swan has cited the relative health of the banking sector as one of the reasons why Australia has handled the financial crisis better than any other advanced economy and so far avoided a recession.

“Major financial institutions, some of which withstood world wars and the Great Depression, have either collapsed or been bailed out ... (but) our banking sector is amongst the most stable in the world,” he said recently.

The country's 'Big Four' banks — Commonwealth, Westpac, ANZ and NAB — posted a combined total of A$8.3 billion (US$6.7 billion) in interim profits in recent months.

While they all reported writedowns due to bad debts, there has been no need in Australia for the huge government bailouts needed in many other countries to keep banks afloat.

In fact, Australian Bankers Association chief executive David Bell points out that Australia's big banks account for four of the eight banks in the world rated AA- by credit agencies.

“Not a bad result when our country is just two percent of the world economy,” he said.

“Forecasters and commentators agree that the stability and security of Australia's banking system have played an important part in our economy's resilience.”

The reason the banks have withstood the downturn so well is because they did not make themselves vulnerable by handing out risky loans during the good times, according to the Reserve Bank of Australia.

“The banking system is soundly capitalized, it has only limited exposure to sub-prime related assets and it continues to record strong profitability and has low levels of problem loans,” the central bank said.

But consumer advocacy group Choice points to another reason for the banks' health, saying lack of competition has allowed them to charge much higher fees than overseas counterparts.

“It is the abysmal lack of competition that has allowed the Australian banks to gouge customers and therefore remain strong in the face of weak global markets,” Choice senior policy analyst Elissa Freeman said.

A report from Fujitsu Consulting earlier this year found that bank fees levied on Australian households were 22 percent higher than those in Britain and 11 percent more than in the United States.

The Reserve Bank estimated that Australian customers paid 4.85 billion U.S. dollars in bank fees in 2008, up eight percent on the previous year.

Freeman said competition in the sector was set to deteriorate further as the big banks swallowed up smaller rivals weakened by the financial crisis.

She said Westpac's recent merger with St. George and the Commonwealth's takeover of BankWest showed the Big Four would emerge from the downturn more dominant than when they entered it.

“The global financial crisis has seen competition in retail banking sacrificed further in order to deliver stability in the banking system,” she said.

The government has done nothing to prevent consolidation in the banking sector but it has criticized banks for failing to pass on interest rate cuts implemented by the Reserve Bank.

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