ABA Says Growth in Fees Paid by Households and Businesses Remains Low

On the day the RBA published its analysis of banking fees, the Australian Bankers Association also released their report.

The ABA’s report is based on the RBA’s banking fees survey. The ABA data is different to the RBA data for personal loans, (and hence aggregate fees paid by households), because of a discrepancy in the treatment of data for personal loans for one bank. This results in ABA data showing aggregate fees paid by households were flat while RBA shows a very small rise. The RBA has included the full amount of the discrepancy in their data this year, while the ABA did not have sufficient information to allocate the data accurately. Both the ABA and RBA will review the treatment of this discrepancy next year.

Total bank service fees increased slightly to $12.5 billion in 2016, but increased less quickly than bank activity.

Fees paid by households were broadly unchanged at $4.3 billion in 2016. They averaged around $9.00 per week for each household and have changed little in five years.

Fees paid by businesses increased by 1.5 per cent to $8.2 billion in 2016, but remained well below the peak of 2007.

What is missing from both the RBA and ABA report is segmented analysis. For example, the RBA says SME’s bear significant loan fees, and there is no analysis of which households pay more, or less. We think bank fees vary across households, and exception fees hit a small but significant portion of households. Averages are relatively meaningless.

Exception fees, which include include late payment fees and over-the-limit fees, accounted for 5.8 per cent of all bank service fees this year. A total of $724 million in exception fees were paid by households and businesses over 2016 – an increase of 5.6 per cent or $38 million. Households paid $611 million in fees while businesses paid $113 million. This is an increase of $8 million for households and $83 million for businesses.

The number of customer transactions, loans and accounts are increasing but growth in fees paid by households and businesses remains low, the Australian Bankers’ Association said today.

“The past year has seen little change in bank fees paid by households, at the same time as more than 900,000 new home loans were provided by banks, and half a million new credit card accounts were opened,” ABA Chief Executive Anna Bligh said.

“This is due to a combination of factors including strong competition, more low-fee and no-fee products being offered, and the industry’s efforts to educate customers about how to minimise the fees they pay.”

The ABA report1 released today, Fees for banking services, shows the average weekly bank fees paid by households is $9, the same amount it has been over the past five years.

“We know how important transaction accounts are for bank customers to do their day-to-day banking and virtually every Australian has one. Pleasingly, the amount households paid in 2016 in fees for their transaction accounts was at its lowest level in 15 years.

“At the same time, we’re seeing more people using their transaction accounts more often,” Ms Bligh said.

“Also, mortgage fees relative to the number of home loans provided to customers were the lowest on record and fees for credit cards relative to the amount of credit accessed remained at the lowest level in more than a decade.”

Ms Bligh said bank fees paid by businesses for loans were also low when compared to the increase in lending.

“Over the past year, the increase in fees of 2.4 per cent was well below the 8 per cent increase in business loans.

“Large businesses accounted for 58 per cent of bank service fees from business loans,” she said.

Other key findings include:

  • Fees as a proportion of banks’ operating income is 13 per cent, well below the peak of 18 per cent in 2003.
  • Credit card fees as a proportion of the total balance outstanding is 3.7 per cent, which is around the same as the past 10 years.
  • Bank fees relative to their assets (the bulk of which is loans) is at a record low of 0.37 per cent.

Banks and brokers in remuneration talks

From The Adviser.

Representatives from the mortgage broking industry have met with the Australian Bankers’ Association to discuss proposed remuneration reforms.

The ABA, which instigated the highly contentious Sedgwick review, met with the Mortgage and Finance Association of Australia (MFAA), the Finance Brokers Association of Australia (FBAA) and the Customer Owned Banking Association (COBA) on Friday, and held a discussion forum with key industry participants including bank and non-bank lenders, aggregators and brokers to progress reform.

The forum, held on Friday, 9 June in Sydney, was recognised by participants as an opportunity for the industry to understand the key issues in response to ASIC’s proposals for mortgage broking; the potential impact to aggregators and lenders; and the overlap with the Sedgwick review.

While the ABA has given little information about what was discussed, the association’s executive director of retail policy Diane Tate said the meeting was “an important step” for the industry to work together on options for an industry-based response to calls for changes in the mortgage industry.

“We have heard these calls to change incentives and governance arrangements and we look forward to working with the industry, in consultation with the government and subject to all competition law obligations, on reforms to support good customer outcomes,” she said.

The FBAA’s Peter White said the forum was “a unique step forward” for the third-party channel.

MFAA chief executive Mike Felton said the discussions are a “crucial step” in the process of determining how the industry responds to the challenges of addressing ASIC’s proposals on broker remuneration, ensuring the sustainability of the industry going forward.

“This meeting demonstrates that our industry is serious about self-regulation and has the maturity to work together across different stakeholder groups to effect the required change and ensure customer outcomes continue to remain front of mind,” Mr Felton said.

Both the FBAA and MFAA were scathing in their reponse to the Sedgwick review, which included a number of proposed changes to the way brokers are paid.

Following the release of the report, Mr Felton said the association was “frustrated” by Sedgwick’s proposals, which he said were essentially recommending a consolidation of power to lenders, giving them complete oversight of mortgage brokers.

“This would lead to a reduction in independence, would do little to enhance competition and tip an already precarious power balance further towards the big four and away from consumers’ interests,” he said.

Meanwhile, the Mr White said the release of the ABA-funded Sedgwick review was making recommendations to banks, which “seem to be taking it as gospel”, and influencing regulators before any decision has been made by ASIC, Treasury or the minister.

“The banks and the ABA unquestionably must stop this attempted regulatory manipulation through the Sedgwick report and allow the works of ASIC and Treasury, and then the minister, to make the appropriate determinations without manipulation driven by self-interest, greed and poor consumer and industry outcomes,” he said.

The FBAA, MFAA and ABA will hold further discussions in the coming months, with all participants committing to work in consultation with Treasury and government stakeholders on an industry-led response.

Significant Questions Remain on Bank Tax – ABA

The legislation for the major bank levy introduced today shows the Federal Government’s original design had major flaws and significant questions remain on how this rushed legislation will affect the economy, the Australian Bankers’ Association said today.

“The Government has been forced to make concessions to the bank levy following the banks’ one and only opportunity to meet with Treasury on such a major Budget measure,” ABA Chief Executive Anna Bligh said.

“Banks welcome the concessions which would have had unintended consequences across the financial system, but despite these changes, major banks remain concerned about the Government’s poorly-designed tax grab,” she said.

The legislation, revealed to the public for the first time today, showed the levy will no longer apply to:

  • Derivative transactions, which banks use to minimise their risk.
  • Money the banks hold with the RBA.

Banks had argued for both of these changes.

“This is a tax on all Australians even with these changes. The Government’s own analysis released today acknowledges that the impact of this tax could hit “bank borrowers, lenders, shareholders or some combination of these groups”1,” Ms Bligh said.

“This levy will impact on investor confidence in Australia’s major banks and make it more expensive for banks to raise the money they need to lend to businesses and individuals,” she said.

“The major banks’ market value has already fallen by around $39 billion since the Budget.”

Despite these changes the Government still maintains that the levy will raise $6.2 billion over the four years of forward estimates in the Budget.

“Treasury has not provided sufficient modelling to explain their calculations in the Budget. At this stage, we are still uncertain just how much the levy will raise.

“There is no sunset clause which is unfair to those who will be impacted by the tax. One of the rationales for the levy is that it will contribute to budget repair,” Ms Bligh said.

“If that is the case then let’s be fair and remove the tax once the budget is back in the black.”

ABA says the Federal Government must open up the major bank levy for public scrutiny

The Federal Government must open up the major bank levy for public scrutiny, the Australian Bankers’ Association said today.

“The four major banks have met Treasury’s extraordinarily tight timeframe to lodge their submissions this morning under strict confidentiality,” ABA Chief Executive Anna Bligh said.

“It is now time for the Government to reveal when it will release the legislation to the public – after all, this tax will affect millions of Australians who own shares in banks or are bank customers.

“At the moment we can’t quantify the impact of this tax on banks, and the flow on effects to customers, because the legislation has not been in the public domain.

“The ABA calls on the Government to provide more clarity as to when the public will be able to see the major bank levy legislation,” she said.

Is The ABA Split?

Not according to the ABA’s press release.

Deputy Australian Bankers’ Association Chairman and Bendigo and Adelaide Bank Chief Executive Mike Hirst has today described rumours of a split in the ABA as “complete rubbish”.

“From time to time there are occasions where banks have different views and different commercial interests. However, 99 per cent of the time we agree,” Mr Hirst said.

“As individual members we each have the strength and respect for each other that allows us to have robust discussions on a variety of issues.

“Together we are a strong industry with a strong industry association working to provide better banking for Australia’s customers,” he said.

ABA Chief Executive Anna Bligh has been in regular contact with non-major bank CEOs, including a teleconference with all regional bank CEOs as recently as yesterday afternoon, and has several scheduled meetings with non-major bank executives in the coming days.

Meantime Aggregator AFG has also released a strongly worded statement about the weakness of the recent ABA Remuneration review.

AFG has today asked the regulator to keep a watchful eye on the big banks to ensure they do not use the Government’s recently announced major bank levy and their own Australian Bankers’ Association (ABA) Retail Banking Remuneration Review as a justification to implement changes designed to reduce the financial viability of providing broking services and marginalise large portions of the lending sector, leaving them without a distribution network.

“The ‘big bank levy’ announced by the Treasurer on budget night recognises the artificial taxpayer subsidy the four major banks and Macquarie have received through their lower borrowing costs since the GFC,” said AFG CEO (Interim) David Bailey.  “The government is finally seeking to level the playing field.

“History suggests the big banks will undoubtedly pass this new cost on.  The extent to which they are able to pass this levy on will depend on how strong our regulators are with the new supervisory powers also announced on budget night.

“Supervision of mortgage pricing has been tasked to the ACCC and the Productivity Commission will be conducting an Inquiry into competition in the sector.  AFG welcomes this news.

“We will be telling the Productivity Commission that the four major banks dominate the Australian lending market and a viable mortgage broking market is crucial for retaining competitive pressure,” he said.

The Australian Securities and Investments Commission (ASIC) has recently completed an exhaustive review of the remuneration of mortgage brokers and the overriding conclusion was that brokers are good for competition and as such have delivered good consumer outcomes.

“ASIC identified some areas where the industry could be strengthened but it did not recommend wholesale changes to the current remuneration structure as incorrectly reported in some quarters,” said Mr Bailey.

“It is incumbent upon the industry as a whole to respond to the regulatory process and our industry is doing so.  AFG will continue to play a leading role in this response representing our 2,800 mortgage brokers.

“One very vocal industry participant, the Australian Bankers’ Association (ABA), conducted their own review into remuneration structures, principally about their own sales channel, which is entirely appropriate. However, at the time the scoping document was released AFG questioned why, given the width and breadth of the ASIC review the ABA would choose to incorporate the broker channel in their scope.

“For the ABA Review to be regarded as a significant analysis of the broking industry is quite frankly outrageous.  We continue to assert that it is nothing more than the opinion of a single interest group, the banking lobby group.

“All major lenders came out within hours of the ABA review being released and committed to implementing all of the changes recommend.

“For anyone to suggest that the ABA should be the one driving remuneration change when there is already a consultative process underway with ASIC and Treasury is ridiculous.

“Tweaks are needed, not wholesale change; we would urge the regulators and government to ensure the ASIC Review is not used as a lever to drive an even better outcome for the big banks.”

“We all need to come back to the central conclusions of the ASIC Review – brokers are good for competition and for consumers.  If consumers were not satisfied with the broker channel they would have abandoned it.  In fact, recent statistics show that that broker market share is growing.

“A significant change to the broker remuneration model impacts the ability of the broking industry to survive which mean the non major lenders, who rely on the broker channel to distribute their products across the Australian market becomes compromised,” said Mr Bailey.

“This means less choice for consumers and higher home loan rates.  This is not a good consumer outcome but does provide more strength to the Big Four banks.

“AFG has worked hard at providing choice for our brokers’ customers and with 45 lenders on our panel more than 30% of our flow now goes to non-major lenders. This is a great consumer outcome.  We would like to think the non-majors are supportive of the current remuneration structure,” he concluded.

 

ABA Writes To The Treasurer Seeking Information

The Australian Bankers’ Association Chief Executive Anna Bligh has written to the Hon Scott Morrison MP calling on him to immediately release Treasury modelling of the major bank tax.

The letter highlights  the severely truncated consultation period and the risk of unintended consequences and seeks individual levy calculations as promised during their earlier meeting with Treasury officials.

Ms Bligh said in order to meet the request by Treasury to comment on the draft legislation, the ABA was seeking further information by 5pm Tuesday 16 May on fundamental aspects of the bank levy, including:

  • Treasury’s modelling on the economic impacts of the bank levy, including the wider impact on Australian households and businesses.
  • Treasury’s technical analysis that underpinned the design of the tax, including the coverage of banks and the design of the levy.
  • Treasury’s modelling including assumptions of the total revenue projections to be collected by the bank levy over the forward estimates.

Ms Bligh said it was no longer acceptable to keep the banks or the Australian community in the dark about a $6.2 billion political tax grab that would have a major impact on all sections of the Australian economy.

“Senior executives of the major banks in good faith attended what they expected to be a comprehensive briefing from Treasury yesterday, only to find to their dismay that Treasury was also in the dark,” she said.

“Fundamental questions about how this tax has been calculated and how the $6.2bn figure was reached have not been answered.

“Yet the Treasurer Mr Morrison continues to maintain that this tax will be ready for implementation by July 1, which is only around six weeks away.

“The Government seems to be putting intolerable pressure on its Treasury officials to meet a ridiculous political timetable,” she said.

“The major banks are terribly concerned about the risk of major unintended consequences of this new tax, and there is an urgent need for more detailed information so we can properly assess its impacts.

“This process is already breaking all the rules and conventions about major taxation implementation, including no prior consultation, no exposure draft legislation for public comment, and an extraordinarily brief timetable before a hastily designed tax is presented to the Parliament.

“Disastrous unintended consequences could flow from this rush,” Ms Bligh said.

Bank Levy – Policy On The Run?

The CEO of the Australian Bankers’ Association Ms Anna Bligh today warned that the Federal Government’s new $6.2 billion bank tax is fraught with even more uncertainty after Treasury officials were unable to answer key questions at a briefing with banks in Sydney today.

“Not only has the Government kept the banks and the public in the dark on this new tax, it is now clear that they have kept Treasury in the dark too,” Ms Bligh said.

Bank representatives left today’s meeting with more questions than answers, with more than 20 important issues that were unable to be addressed.

These includes serious and complex issues such as:

  • The basis on which Treasury calculated the $6.2bn estimate.
  • How the new tax would affect transactions between the five banks and the Reserve Bank, and how that might impact the broader economy.
  • Which of the banks’ commercial activities will be captured by the tax.

“It is even more clear that this is policy on the run, playing fast and loose with the most critical sector of the Australian economy.

“Alarmingly Treasury officials also confirmed the Government was abandoning normal processes in preparing the legislation,” Ms Bligh said.

Today’s meeting with Bank representatives and Treasury officials less than two days after the Treasurer announced the tax in Tuesday’s Budget is the first time banks have been consulted on the new tax.

Confirming that this bad public policy has been introduced in haste, banks have only until midday Monday to make submissions to Treasury about the new tax. Normally, parties making submissions on new legislation have several weeks to respond.

Treasury also confirmed that it would only provide draft legislation next Wednesday giving banks only a day to respond. Even more concerning, the draft will not be released for public consultation.

“Serious questions need to be asked about the indecent haste with which this new bill is being shoehorned into Parliament in a way that will avoid normal drafting and review processes and the scrutiny that should accompany such a critically important piece of legislation.

“As we said on Tuesday, this is bad public policy concocted on the run as a political tax grab to fill a Budget black hole,” Ms Bligh said.

ABA Welcomes McPhee Report

The Australian Bankers’ Association has welcomed today’s release of Mr Ian McPhee’s report which found the industry has made significant progress delivering the reform program it announced 12 months ago.

Mr McPhee noted that banks were making good progress in delivering the initiatives but also recognised that expectations are constantly changing and there are government processes which will need to be carefully factored into the reform program.

Significant milestones achieved in the quarter to April 2017 included:

  • The appointment of customer advocates by 19 banks to help customers resolve issues.
  • Major banks updating their whistleblower protections to meet the highest standard to encourage a ‘speak up’ culture, and three other banks doing this ahead of schedule.
  • The delivery of two key independent reviews into the Code of Banking Practice (Khoury Review) and retail bank staff remuneration (Sedgwick Review), which will result in significant benefits to customers.
  • Three additional initiatives1 to build on the ‘6 Point Plan’, which address consumer concerns about people in financial hardship, switching banks and small businesses and farmers.

ABA Chief Executive Anna Bligh said she was pleased Mr McPhee had acknowledged banks’ commitment to change.

“One of my first priorities is to work with banks to identify changes that can be implemented quickly and effectively, and which will make a meaningful difference for customers.

“In my own interactions with bank CEOs, I have been impressed by how committed they are towards this reform program and I was pleased Mr McPhee acknowledged this in his report.

“Ultimately it is action, not commitment, which will demonstrate that change is genuine. Banks understand that to build greater trust in banking, customers need to see, feel and touch evidence of change,” Ms Bligh said.

Mr McPhee’s report also highlighted that some reform initiatives – such as external dispute resolution arrangements and ASIC breach reporting – rely on government and regulatory action before banks can progress them further.

Ms Bligh said that in addition to the banking industry’s own reform program, there were a further 15 inquiries, reviews or investigations into banking underway by government or regulators.

“There is an enormous amount of scrutiny on banks at the moment and the industry is serious about change. Banks have made a lot of progress over the past year, but there is much more to do.

“The industry needs to get better at communicating its massive reform agenda which is transforming banking in Australia, and also measuring how well it has met the changing expectations of customers and the wider community,” she said.

A copy of Mr McPhee’s report is available at betterbanking.net.au.

ABA Releases Final Sedgewick Report

Public Service Commissioner Stephen Sedgwick AO was appointed by the ABA to review how bank tellers and other customer-facing bank employees, their managers, and third parties are paid by banks. The final report was released today. He concludes:

It remains my view that there is not sufficient evidence of significant systemic risks of poor outcomes for customers to support an outright ban on all product based payments in retail banking.

Nonetheless, as foreshadowed in the Issues Paper, some current practices carry an unacceptable risk of promoting behaviour that is inconsistent with the interests of customers and should be changed.

Some of these relate to management practices that may reduce the effectiveness of the bank’s risk mitigation strategies. Other practices relate to the way incentives and remuneration are structured. The need for change is true of both direct (i.e. staff) and some third party channels – a view reinforced by myreading of the Australian Securities & Investments Commission’s (ASIC) recent report into the mortgage broking sector.

The ABA says: Mr Sedgwick has concluded that while there are not systemic issues warranting the outright banning of product based payments, some practices need to be changed because they could promote behaviour inconsistent with customer interests.

“Mr Sedgwick has not only identified that remuneration arrangements need to improve, but also that it needs to happen alongside a change in culture and approach from management,” Ms Bligh said.

“Banks don’t underestimate the changes recommended by Mr Sedgwick. This will not be easy for banks and there will be challenges. Changes will need to be made to bank policies, workplace agreements, contracts, staff training programs, internal controls, and performance management systems.

“This is not just about payments; it’s about governance and leadership. It’s not just about bank tellers and their managers; it goes up the line.

“Banks have heard the criticism about the sales culture. The industry needs to embed a customer-focused culture so customers have confidence banks are doing the right thing by them,” she said.

Ms Bligh said individual banks would take action to make changes to their businesses, while any industry-wide response would need to consider competition and other legal obligations.

“Banks will focus on the best way to change payments for their employees,” she said.

“Mortgage brokers play an important role in supporting competition in the home loan lending market, and the industry wants to ensure competition is preserved and customer choice is maintained.

“The ABA will seek guidance from the Australian Securities and Investments Commission and liaise with the Australian Competition and Consumer Commission as appropriate, in particular around changing payments to third parties like mortgage brokers,” Ms Bligh said.

Mr Sedgwick’s final report contained 21 recommendations about what banks should do to ensure payments achieve better customer outcomes, including:

  • No longer paying retail bank employees incentives based directly or solely on sales.
  • Where incentives are paid, they should be based on a range of measures of which financial measures is not the dominant component.
  • Incentives paid should be product neutral and no longer include payments related to additional products or cross-selling products.
  • Examining workplace culture and leadership frameworks to ensure they are aligned with good customer outcomes.
  • Increasing transparency of remuneration arrangements with third parties, such as mortgage brokers, including stopping payments directly linked to loan size and introducing more robust performance management like that used with employees.

“The ABA would like to thank Mr Sedgwick and his team for conducting a rigorous and thoughtful independent review,” Ms Bligh said.

More information on the Sedgwick Review, and a copy of his final report, is available at retailbankingremreview.com.au.

Background

On 16 March 2017, ASIC published its report into the review of mortgage broker remuneration.

Mr Sedgwick’s recommendations are consistent with ASIC’s findings and proposals to improve consumer outcomes and competition in the home loan market. Mr Sedgwick’s final report identifies how the ASIC proposals could be implemented by banks and the mortgage broking industry working together to protect consumer interests, increase transparency and promote competition.