Business customers 'gouged' on fees
The total value of bank fees paid in Australia rose 4.3 per cent to $11.4 billion last year, the Reserve Bank said on Thursday.
While charges paid by households fell slightly, to $4.1 billion, this was more than offset by strong growth in fees from business.
Fee income from business jumped by 7 per cent to $7.3 billion, and has surged by a quarter since 2009. Over the same period, the value of outstanding business loans increased by just 2.7 per cent, figures from the Reserve show.
The increase in fees paid by business, which the Reserve described as "substantial", was attacked by the Australian Chamber of Commerce and Industry. The peak body's chief economist, Greg Evans, said banks appeared to have increased their fees well beyond the underlying cost of delivering services to businesses, and they were using business customers to subsidise lower fees for households.
"Account service fees and loan review fees are paid with no benefit to customers and they are becoming a lucrative and growing revenue source for these institutions," Mr Evans said.
"Ultimately competitive pressure should be the answer but in its absence lenders are exerting significant pricing power."
The Australian Bankers' Association said fee revenue from business had risen over the past year because of a rise in lending, especially to larger companies.
Banks' fees from business customers had increased sharply after the financial crisis because companies had turned to banks as a source of finance, it added.
It also highlighted the fall in household bank fees, which have dropped in each of the past three years to $4.1 billion in 2012. Last year the pace of the reduction slowed, with a fall of 0.3 per cent.
Credit cards were biggest source of fee income from households, with consumers spending $1.3 billion on credit card fees.
Home loan and deposit fees fell, while there was solid growth in "exception" fees - which can be levied on overdrawn accounts.
Frequently Asked Questions about this Article…
Reserve Bank data show fee income from business jumped 7% to $7.3 billion last year and has surged about 25% since 2009. Industry groups disagree on the cause: the Australian Chamber of Commerce and Industry says banks have pushed fees beyond the cost of services and are using business customers to subsidise lower household fees, while the Australian Bankers' Association says fee revenue rose partly because of increased lending, especially to larger companies and the post‑financial‑crisis shift back to bank finance.
According to the Reserve Bank, total bank fees in Australia rose 4.3% to $11.4 billion last year. Of that, businesses paid about $7.3 billion in fees, while households paid roughly $4.1 billion.
Household bank fees have fallen in each of the past three years to $4.1 billion in 2012, with the pace of reduction slowing to a 0.3% fall last year. Credit card fees remain the largest household fee source (consumers spent $1.3 billion on credit card fees), while home loan and deposit fees declined and 'exception' fees (for example, on overdrawn accounts) saw solid growth.
'Exception' fees are charges banks can levy for events such as overdrawn accounts. The Reserve Bank noted solid growth in exception fees for households, which helps explain part of the composition change in household fee income even as some traditional fees like home loan and deposit fees fell.
The Australian Chamber of Commerce and Industry and its chief economist Greg Evans specifically criticised account service fees and loan review fees, saying they are paid with no benefit to customers and have become a lucrative and growing revenue source for banks.
No. Reserve Bank figures show outstanding business loans rose only 2.7% over the same period that business fee income surged about 25% since 2009, suggesting fee growth outpaced lending growth. The Australian Bankers' Association, however, points to recent increases in lending—especially to larger companies—as a factor in higher fee revenue.
Industry commentary in the Reserve Bank report suggests banks may be exerting significant pricing power: the ACCI argues that, in the absence of competitive pressure, lenders have been able to raise fees to businesses. For investors, this highlights a regulatory and public debate about fee practices that could influence banks' reputations, regulatory scrutiny and future fee revenue trends.
Everyday investors should monitor Reserve Bank fee data and industry commentary about business fee income, watch for changes in lending volumes versus fee growth, and note shifts in household fee composition (credit card and exception fees). These trends can signal where banks are deriving revenue and potential areas of regulatory or competitive pressure.
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