NEIL MITCHELL:
Josh Frydenberg, good morning.
JOSH FRYDENBERG:
Good morning, Neil.
NEIL MITCHELL:
Isn't the truth is that there's not much you can do, really, to the banks?
JOSH FRYDENBERG:
We can boost competition, we can boost transparency, we can empower consumers; actions that we already have underway. But what we need to do is end this merry dance, Neil, where every time the RBA cuts the cash rate, politicians and, indeed, the RBA themselves call on the banks to pass on the rate cuts in full to their customers and that advice is ignored by the banks and that undermines the public's confidence in their banks and ultimately leads them to getting a worse deal than they are entitled to.
NEIL MITCHELL:
But they've been doing it forever. You can't embarrass them, if anything was going to embarrass them it would have been that Royal Commission. How can you force that competition?
JOSH FRYDENBERG:
Well, what we have done is passed a piece of legislation through the Parliament called the Consumer Data Right which will allow Australians to securely transfer their banking information so their number of accounts, the type of account, their transaction history to another provider in order to get a better deal. That will eliminate the red tape or the paper work that is currently involved in switching. But also, there's a difference between what the banks charge their existing customers and what they charge their new customers and the public needs to be aware of that and the banks need to explain why when their cost of funds have come down so significantly to historical lows, as the RBA has told us, that they haven't passed on these rate cuts.
NEIL MITCHELL:
Well, it's interesting you mention that. I was talking to Shayne Elliott on air from the ANZ on Friday, the chief executive. Let's play you the essence of what he said when I asked him this question. Shayne Elliott…
NEIL MITCHELL:
Why not pass on the full amount?
SHAYNE ELLIOTT:
What's happened is one of the ingredients that goes into our cost has changed its price and we passed it on. It's a bit like if I was a baker and the price of flour dropped 10 per cent, the price of bread doesn't drop 10 per cent. And all that's happened here is one source of funds, one source, things that are priced off the RBA cash rate are a bit cheaper, but nothing else has changed.
NEIL MITCHELL:
Does it go to your bottom line? Does it improve your profit?
SHAYNE ELLIOTT:
You're going to see the results for the banks in a few weeks' time and I'm pretty sure, I've got to be pretty careful what I say here in terms of disclosure, but I don't think you're going to see the banks doing well out of that, no.
NEIL MITCHELL:
Well, Treasurer, what do you think? What do you think of the baker analogy?
JOSH FRYDENBERG:
I don't think that is necessarily appropriate in this case because the RBA cash rate is used as a reference for their sources of funds, not their deposited rates, but for their other source of funds which are about half of what they use. So, there has been a substantial reduction in their funding costs and you've got the cash rate now at a historic low at about 75 basis points. You've got someone who has got money on a term deposit with the bank getting around 1.4 per cent. Then you've got an advertised standard variable rate on a residential mortgage which is about 4.8 per cent and Australians are asking themselves why is there such a big gap; the banks continue to be profitable and I don't begrudge profitability but what I do expect is that the banks do the right thing by their customers and pass on these rate cuts in full when their cost of funding has come down so significantly.
NEIL MITCHELL:
Well, is he being a bit disingenuous? Because he's saying only a small part of their cost has come down. Is he being disingenuous?
JOSH FRYDENBERG:
Well, that's what this inquiry will show is the true story behind these bank books. The ACCC have special powers to compel documentation and information that other organisations can't elicit from the banks and the ACCC will work with the RBA, they'll work with ASIC as well as APRA and ensure the Australian people and, indeed, the Government gets a much clearer picture of what is going on when they lift the hood on the banks.
NEIL MITCHELL:
Okay, well, bottom line, are they being greedy? Are they ripping us off?
JOSH FRYDENBERG:
Well, I have felt in light of the Royal Commission which looked into the misconduct of the banks – this is looking into something different, mainly their failure to pass on interest rate cuts – but I have felt that the banks have left themselves open to the charge that they've put profits before their customers. And, certainly, the public are quite disenchanted with their banks and that's not good for anyone.
NEIL MITCHELL:
So what does the public do? What would you advise the public to do?
JOSH FRYDENBERG:
I would advise the public right now to ring up their bank, ask for a better deal on their home loan and if they don't get a better deal to look elsewhere where they can and to take their business elsewhere to actually be proactive because the banks have shown a willingness to lower rates, to keep customers or to attract new customers, and unfortunately, those people who are inactive and show loyalty to the banks are being punished.
NEIL MITCHELL:
You can't legislate though, can you? You can't pass a law to force this decency?
JOSH FRYDENBERG:
No, we believe in the market, we don't believe in necessarily higher taxes or levies either as a way to change behavior. What we do believe is empowering consumers, getting more competition, getting more transparency and that is the motivation behind this important inquiry.
NEIL MITCHELL:
And if the banks don't react to this and your inquiry doesn't get anywhere, what happens then?
JOSH FRYDENBERG:
Well, they ultimately have to respond to the inquiry, they'll have to provide this information and once all this information is out there in the public domain, then I think we will have a clearer idea why the banks have acted the way they have and if the public are not happy with that, then ultimately, they will take their business elsewhere.
NEIL MITCHELL:
Is it possible Shayne Elliott could be right? Is it possible their argument stands up?
JOSH FRYDENBERG:
What he is right about is that the banks have a series of sources of funds and the price of those funds have come down. They don't just get funds that are referenced off the cash rate, but the cash rate is a really important component in their cost of funds. And we have seen global interest rates come down and we have also seen the rates paid to depositors come down. So, there's no reason, in this case, why the banks shouldn't be doing better by the way of their customers.
NEIL MITCHELL:
Should they be paying more to the self-funded retirees as rates are going down?
JOSH FRYDENBERG:
Well, obviously, that's a balancing act that they have to undertake. They've got to provide returns and dividends to their shareholders, they've got to pay their depositors in a way that continues to attract that money into the bank, but they've also got to give borrowers the most efficient and cost-effective product and price. What we have seen, Neil, is some of the smaller lenders move very quickly in passing on the rate cuts in full, while the big banks have dragged their feet.
NEIL MITCHELL:
Is there a social responsibility on the banks here?
JOSH FRYDENBERG:
There's absolutely a responsibility on their part to treat their customers fairly, to compete vigorously and when you've got the big four banks tying up around 80 per cent of what is a $2 trillion residential mortgage market, we need it to work in a much more efficient and effective way than it currently does.
NEIL MITCHELL:
Well, thank you for talking to us. This is a test for you, right. How does this differ to the Royal Commission and previous ACCC inquiries?
JOSH FRYDENBERG:
Well, the ACCC inquiry previously into the residential mortgage market looked particularly at one issue, namely did the banks pass on to their customers the bank levy? And in that case they found that they didn't. What the Royal Commission did, Neil, was look at misconduct in the financial sector and also at the behaviour of the regulators in penalising that misconduct. This inquiry is into the pricing of residential mortgages, the failure of the banks to pass on the rate cuts in full and the reasons behind that, as well as how can we improve the ability of your listeners to switch banks if that is what they decide to do.
NEIL MITCHELL:
I said it was a test because that question came directly from the talking points that have been leaked today, and it says how you should answer it and you did alright. You've got to talk about misconduct, you've got to talk about focusing on residential mortgage. You did alright. Have you read the talking points instructions today?
JOSH FRYDENBERG:
I have to confess I haven't.
NEIL MITCHELL:
You might have written them by that answer.
JOSH FRYDENBERG:
I think as the Treasurer and as the person responsible for giving this instruction to the ACCC, you'd expect me to know what I would like my colleagues to know.
NEIL MITCHELL:
Would you like me to test you on Julian Assange or the bushfires or mandatory jail for child…there's 8,200 words. Do you ever read it?
JOSH FRYDENBERG:
Look, occasionally I do but I can't say I do on a daily occurrence. But you know, you have to be ready for the grilling you get from people like you, Neil.
NEIL MITCHELL:
Thank you for your time.
JOSH FRYDENBERG:
Good to be with you.