Banks and industry groups expect rate rise

Banks and industry groups have pre-empted a raising of the interest rate by the Reserve Bank, with arguments for and against banks passing the buck onto borrowers.

The Australian Bankers' Association (ABA) has already made excuses for banks possibly passing on interest rates to homeowners and businesses, while the Finance Sector Union (FSU) has called on the banks not to place further financial burden on Australians.

ABA chief executive Steven Münchenberg said the cash rate was only one consideration in determining the cost of money lent by banks.

"Thirty cents in every dollar lent by Australia's major banks has to be raised from overseas investors," he explained. "The cost of that money has remained high and volatile and is not controlled by the Reserve Bank. Also, there continues to be strong competition for deposits, which is good news for savers. Savings term deposit rates are around 6 per cent and higher. At times deposit rates have been nearly as high as mortgage rates, but this also adds to the costs of lending."

Münchenberg said individual banks would continue to set home loan and business interest rates at levels that took account of their funding costs, the risks of lending and the bank's position in the marketplace. He added that banks had a responsibility to remain "solid and healthy so that they can continue to raise money offshore from overseas investors to support the growing Australian economy by providing finance to businesses, which keep people in jobs".

FSU national secretary Leon Carter said it was hard to accept arguments that funding pressures warranted a rate rise when banks reported record profits and executive remuneration, adding that Australian banks had an obligation to responsible lending practises and to ensure that interest rates were kept at sustainable levels.

"Many Australians are struggling to manage the large debts that the big banks consistently promote and sell to them," he said. "It is clear that many Australians are feeling the burden of debt, the squeeze of rising interest rates and the major banks need to accept some responsibility for this trend."

Carter added that the sale of debt products continued to be a key performance indicator for many bank workers, something that the FSU was calling an end to as part of its Better Banking campaign.