ABC RN: banks respond to floods, inflation

Transcript – ABC National Radio Breakfast, with Hamish McDonald

ABA CEO Anna Bligh spoke on ABC radio on how banks are responding to the floods across NSW, and the RBA’s moves to curb inflation.

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Hamish McDonald Pain for households already struggling with the rising cost of living – and the central bank isn’t done yet, it says. Anna Bligh is the Chief Executive of the Australian Banking Association. Welcome back to Breakfast.

Anna Bligh Good morning, Hamish, how are you?

Hamish McDonald Very well, thank you. All the major banks passed on the latest interest rate rises in full, is there any reason to think this time it will be different?

“…these are very tough times for the economy and the Reserve Bank is doing what they can to try to balance things back.”

ABA CEO Anna Bligh

Anna Bligh Well, of course, every bank will make their own decision, but I would think that the RBA would be expecting all financial institutions to be lifting their rates in accordance with the cash rate. That’s how the monetary policy works and each bank, as I said, will make their own decision and haven’t announced yet. I would expect over the next couple of days, we’ll hear more. But these are very tough times for the economy and the Reserve Bank is doing what they can to try to balance things back.

Hamish McDonald Banks assess the ability of borrowers to make their repayments if interest rates rise 2%, but rates could be as high as 2.25%, or 2.5% percent by the end of the year. Obviously, there’s the added pressure of inflation on top of that, does that buffer need to be reassessed?

Anna Bligh Well, the buffer is regularly assessed and considered by the regulator APRA. Just to be clear, it’s if rates rise by 2%, if the rate goes up 2% higher than the rate that you’d be paying if you accept the loan. So it is, I think, a pretty realistic buffer in the assessment process.

Of course, it can only assess your circumstances at the point where the loan has been originated. So when you are sitting with the bank manager, or the teller or whoever and saying, “these are my circumstances, can I access a mortgage?”, they will look at your income, they will look at your expenditure and they’ll also say “…okay, we think you can manage this, but what if interest rates went up by a couple of more percent?” They can only do that on all of your circumstances at the time. And we know that over time peoples circumstances change, the economy changes.

“…a very, very high number of Australians with a mortgage are now months ahead in that mortgage, and that will help them get through this.”

So yes, it is going to be I think, quite tough for some people. But we also know that for a range of reasons, particularly the unusual nature of the last couple of years, a very, very high number of Australians with a mortgage are now months ahead in that mortgage, and that will help them get through this.

Hamish McDonald Sure. But I suppose the point is for someone that took out a mortgage, during the pandemic, when the rates were at those extreme emergency levels, when they come off, perhaps their fixed rates, at some point later this year or early next year, they’d be pretty close to the edge of that buffer zone wouldn’t they?

Anna Bligh For some of those people, you’re right, and that’s why the buffer is applied to the assessment process. Trying to imagine in the next couple of years, if circumstances in the economy changed dramatically, would you still be able to service this loan? And of course, if the cost of the loan goes up, servicing will get tougher, and you will be, you know, faced with the decision to tighten your belt in other areas of your expenditure. That’s exactly what the reserve bank wants the economy to do. tighten its belt to pull back inflation.

So I certainly know that there will be many customers, particularly as you say, those ones who may have taken out a mortgage just the last couple of years, who will be finding this very tough. And if they’re already on a variable rate, they’ll be feeling that pain right now, not just next year, or when they’re fixed rate finishes.

That’s why banks have very experienced hardship teams, that can provide a lot of a very big range of assistance to customers in all sorts of circumstances. Things happen to people all the time – they lose their job, they have a car accident, their marriage breaks up, or in this circumstance, cost of living races ahead of their ability to make payments. And those teams are very experienced and help people get through that patch on a very regular basis. So people who are doing it tough really should be talking to their bank.

“…it’s starting to get very competitive out there. And I would certainly encourage people to shop around. There are some very good deals out there. And there are websites that you can go on to, you know, to give you comparisons between banks, and you’ll see small banks, large banks, all sorts of financial institutions now lifting their deposit rates.”

Hamish McDonald Why aren’t we seeing the big four banks lifting their interest rate in any significant way on savings?

Anna Bligh Well, as you’ve just heard from the previous interview Hamish, we are seeing that it’s starting to get very competitive out there. And I would certainly encourage people to shop around. There are some very good deals out there. And there are websites that you can go on to, you know, to give you comparisons between banks, and you’ll see small banks, large banks, all sorts of financial institutions now lifting their deposit rates, and I would expect we’re going to see more of that going forward.

Hamish McDonald There are definitely examples. This is really a question about why we don’t see that uniformity that we tend to see in the other direction.

Anna Bligh As you would expect, banks are commercial organisations, it’s important to all Australians, that Australian banks are strong and profitable. We saw that during COVID. When you have a big, profitable, strong, stable banking system, it can absorb big economic shocks. And that’s what the system did.

Hamish McDonald It is about profits ultimately.

Anna Bligh Well, it’s about getting the balance right. It’s about making sure you can be there to assist those customers when they’re in trouble. It’s about making sure you can offer good deals in the marketplace for both the price of your mortgages and the price or the benefits of your deposits. And at the end, also providing something back to your shareholders, including those working Australians whose superannuation is invested in Australian banks. So you need to get that balance right, right across the operations of the bank.

Hamish McDonald Do you believe Australia is on track for a recession?

Anna Bligh I’m not an economist Hamish, you can get 30 economists in a room and you will probably get 30 different opinions on that. Look, what I would say – I hope we’re not. I think the Reserve Bank is doing its best to ensure that the economy is being well managed, and that inflation, which we’ve seen for a range of reasons, escalating, can be pulled back.

We’ve been through a very hard couple of years for most Australians, for most people around the world. So I certainly hope that we’re not on track for that.

“…banks have very experienced hardship teams. They’ve been working with families who experienced fires a couple of years ago, who experienced floods last year and earlier this year. They have a range of very practical measures to support people getting through these kinds of experiences.”

Hamish McDonald We’re very close to the news, but banks responded to the Northern Rivers flood crisis earlier this year with cash advances, three months loan deferrals for customers, are they offering any of that sort of support this time around?

Anna Bligh Absolutely. And I would say to all of those people, who tragically are experiencing natural disasters right now, and for some of them they’re experiencing it for the second, third or fourth time, and I said earlier, banks have very experienced hardship teams. They’ve been working with families who experienced fires a couple of years ago, who experienced floods last year and earlier this year. They have a range of very practical measures to support people getting through these kinds of experiences. So whether that’s deferring payments, waiving fees, restructuring loans, against a case of any businesses they might need credit to get through things the earlier you talked to your bank, the better it will be.

Hamish McDonald We’ll have to leave it there. Appreciate your time this morning, Anna Bligh. Thank you.

Anna Bligh Thanks, Hamish.

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ABC Radiobank relieffinancial diffcultyinflationnatural disaster responseNSW floodsRBA