Topics:  allan johnson, cash rate, funding costs, interest rates, nig banks, opinion, rba

Sympathy for the banker

Allan Johnson of Johnson & Tennent Chartered Accountants
Allan Johnson of Johnson & Tennent Chartered Accountants Janie Kayes

YOU'VE got to feel sorry for our banks.

Our politicians know they can score easy political points with the public by bank-bashing on every possible occasion (so they do).

The media sensationalises any movement in interest rates despite the relatively minor effect these have on most households and any business decision by a bank is subjected to unrelenting analysis and commentary.

Of course, the politicians and the media realize that the banking system in general has a major impact on our lives and therefore anything to do with banks will grab our attention.

On the other hand, the banks have a difficult story to tell.  For example, the monthly RBA decision regarding interest rates (a big news story for the media) is not that important to the banks as it only affects a small part of their business.  The ANZ's policy of meeting and setting its rates independently of the RBA is a subtle way of de-emphasizing the RBA's decisions.

The issue is that, because we don't save enough to fund our borrowings, the banks are forced to rely on overseas funds and this drives a major part of their costs.  The instability of these markets affects the cost of those funds and this is the story that the banks have been trying to explain.

The difficulty is that there are myriad factors which can affect the overseas interest rates and when you throw in currency fluctuations, it becomes almost impossible for the outside observer to separate the spin from the fiction.

And that is why you have got to feel sorry for our banks - they are attempting to explain the unexplainable to an audience of cynics who are merely dreaming of the next one quarter of one percent rate cut.

Surely the better approach for the banks would be to explain their profit margins and the trend of those margins.  After all, profit is the end result of all that complex overseas funding and local cash rates as well as the staff cuts and other efficiency measures designed to make our banking experience so much better.

If the banks could convince the financially literate members of the public (and the media) that their margins are remaining static or even falling, the case for whatever they set interest rates at will be easier to defend.

The general perception is that the banks are gouging and their record profits as well as their interest rate positions support that view.  If they want some sympathy (and I really doubt they do), they need to sell a more understandable story to us all.



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