8 June 2023
HAMISH MACDONALD: This is RN breakfast. Westpac says it is fielding significantly more home loan hardship calls as the Reserve Bank continues its most aggressive tightening of monetary policy in a generation. The RBA this week raised the cash rate for a 12th time to 4.1%, its highest rate in more than a decade. The Treasurer says many struggling Australians will find it a difficult decision to understand. And joining us now is Anna Bligh, the CEO of the Australian Banking Association. Good morning to you. Welcome back to Breakfast.
ANNA BLIGH: Good morning Hamish.
HAMISH MACDONALD: It was Westpac that said the volume of calls to the bank hardship line is growing. Is that being seen across the sector?
ANNA BLIGH: Certainly the sector is seeing people starting to think about what other options they might have if these rate rises start to make it just impossible for them to make their payments, as they have in the past. To be clear, what Westpac said was they’ve got more people ringing their hardship lines to talk about what their options might be. They haven’t yet seen that those calls translate into more people signing up to hardship agreements. But they expect that for some people that is going to start happening. As you know we’ve now seen twelve rises in just over twelve months and for some people that’s just getting very difficult.
HAMISH MACDONALD: As you know many of these mortgages were signed when rates were at all time lows. They were stress tested at a few percentage points above where rates were then. But where rates are now is now getting clear of those stress test levels. Do you acknowledge that actually significant number of people who have mortgages are moving into stress?
ANNA BLIGH: Oh absolutely. There’s no doubt that many of your listeners will be finding it very, very stressful to be meeting the mortgage payments that they’re now required to pay. I should say though that what we see in all of the data is that people are still making those payments and that’s sort of not unusual in that Australians traditionally pay their mortgage first, it’s their first outgoing and then they tighten their belt on everything else. So, there’s no doubt in my mind that there are many people out there who are paying their mortgage on time, but they’re then finding it very difficult to make ends meet on other things, even like their grocery bills. Because of course those bills, the rates are going up to fight inflation and that inflation is impacting on things like the price of groceries. So, there’s no doubt there’s a lot of stress and that’s one of the reasons people are talking to those hardship teams in banks. And I encourage people to do that. There are very practical ways that banks can help to ease the financial pressure temporarily for several months. They can put you on an interest only arrangement. They can in some cases defer payments for a period of time. People who are finding this really difficult should not be doing it on their own. Banks have very experienced teams who can put in place other arrangements to get people through.
HAMISH MACDONALD: Mortgage interest payments and fees rose by 43 per cent to $93 billion over the year to March. Obviously, this time is good for banks, isn’t it? Business is booming.
ANNA BLIGH: Well, what you’ve actually seen is probably one of the most competitive mortgage markets in the last, particularly the last six to seven months, where banks have been offering lower rates wherever they can, in some cases offering cash backs to keep their own customers or to get new customers. What we’re seeing is the largest amount of refinancing. Both people refinancing with their own bank that is, getting a lower rate and starting a new mortgage or refinancing with a bank down the road.
HAMISH MACDONALD: Sure, there has been some competition, but the Big Four all announced near record six month profits this year, around $17 billion combined. That doesn’t look good, does it, when so many Australians are struggling?
ANNA BLIGH: Well, that comes off a couple of years in the pandemic where profits were down. I think it’s important to remember where those profits go. They go to Australians who are living off their life savings in retirement, and they’ve done it pretty tough for about ten years when interest rates were low. It also goes to the superannuation accounts of every working Australian. So, I do think it is important that Australians, that Australia has strong and profitable banks. I wouldn’t be wanting to wish those profits away too quickly, because, as I said, they go to the retirement incomes of every working Australian who has a superannuation account. Profits will always go up and down. There’s been a couple of years of very low profit because of COVID when banks, I think, really were part of Team Australia and helping people through a really tough time. And, yes, profits are returning to normal, but I do think with all the competition we’ve seen in the last six months, the next half year results aren’t going to be the same.
HAMISH MACDONALD: It’s not just normal. Near record six-month profits is what had been announced. I mean, do banks have some responsibility, as people start to get into trouble, to do more than what they are currently in, ensuring that people aren’t overly stressed, don’t lose their homes?
ANNA BLIGH: Banks will do everything in their power to keep people in their homes. People losing their home is an option of absolute last resort. There is no advantage for a bank if one of their customers loses their home. In this case, the interests of the bank, the commercial interests of the bank, are completely aligned with the interests of the customer in keeping that person in their home. Banks did this at enormous scale during COVID. They’d never done it at that scale before. And what I mean is, they found individually tailored bespoke solutions for literally almost a million customers. They’ve learned a lot about how to do this and how long they can support people for. And what they really learnt is, if you support people through those periods of difficulty for, in some cases up to two years, people will come back to payment and they do want to pay off their house. And if you can support them for a period of time, they will come back into full payment. That’s good for the customer and it’s good for the bank in the long term.
HAMISH MACDONALD: On another matter, you announced that, or the Treasurer actually announced that we’re going to be getting rid of cheques by the end of the decade. Have you had much response from customers across the banking sector? A lot of people like their cheques.
ANNA BLIGH: Well, it was only announced yesterday, so, no, I haven’t had much response yet. But I do expect that we will see some people a bit concerned about it, because, yes, you’re right, there are people in our community who really like this form of payment, but there are less and less and less of them right now. Cheques account for 0.2% of all payments from some of the people who are using them. It might be something you use once every five or six years if you buy a house and buy and sell a house, but we can now settle houses without cheques. You can do it through a thing called e-conveyancing and settle your property without pieces of paper being exchanged. We’ve got seven years to prepare for this. Hamish I think the government has been very prudent in giving people a pretty long lead time. It’s plenty of time for us as a community to think about how we’re going to deal with other forms of payment. It’s plenty of time for businesses to get ready for it. And I’m very mindful our colleagues across the ditch in New Zealand, they did this two years ago and they did it with six months notice. So, I think Australians can do it in seven years.
HAMISH MACDONALD: I don’t think you’ll ever convince my 88 year old father, but Anna Bligh thank you very much.
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