How banks bleed borrowers!

Sensational big bank profits put fabulous wealth into the hands of their CEOs. Banks are protected by politicians to whose political parties they contribute large amounts of money.

In the 2021 financial year the banks donated the following amounts to political parties:

ANZ                     $244,000

CBA                     $161,000

Westpac             $128,000

Nab                     $110,000

Total                   $643,000

Of course politicians received donations from other banks and moneylenders too. I suspect the total to be around $2m a year. Not bad! Donations are not the only “Encouragement” that banks give to politicians. The Australian Bankers Association is a powerful lobby run by an former state Premier who knows a lot of politicians and bureaucrats.

It was our federal politicians who “de-regulated” banks around 1987 to give them free-rein to charge what they liked and lend to whoever they liked, whether or not the borrower even looked like being able to repay the loan. If the bank had a borrower’s home, farm or business assets mortgaged as security it did not matter to the bank whether or not they could repay the loan. The bank could just sell them up to get the money back. – unless GBAC stopped them.

But what else can the politicians do but go along with the bankers when bank customers just ignore the politicians or bad mouth them. Politicians  get very little support from most bank customers, so they will not feel much like helping them instead of the banks.

Big four bank profits for the 2021 totalled just under $27 billion. In 2022 they will be higher.

Isn’t it amazing. The Reserve bank seems to regulate how much interest the bank pays  term depositors – about .25 %  a year, but it does not regulate how much they charge borrowers, say on credit cards, about 20%.

MARKUPS

That raises an interesting question. Banks are retailers of loans. They purchase a loan from somebody for one price and sell it out to somebody else for higher price. Retailers in lucrative markets probably do not do much better than marking up their goods by 100%. They buy goods for $100 and sell them for $200. I think that Woolworths marks their goods up by about 50%. They buy for $100 and sell for $150. Then they have to pay overheads, store rentals and staff wages etc. Woolworths made a net profit of just under $2 billion last year

So how do big 4 banks make so much money, about $27 billion a year?

Money comes free in a cheque account, but on term deposits and from the Reserve Bank they pay about .25% on average. That is one quarter of one percent per year. But the Reserve Bank loaned them a large amount of money at .1%.

When they lend to home buyers they mark up their loans by 1,000%, not 100%. That is they pay .25% and lend the money out to home buyers for 2.5%. Their Mark up is ten times what a retailer gets.

When the big banks lend to businesses on term loans for 10 or 15 years, they charge  about 4% to 5% per year. That is a mark up on the .25% they pay, of 1,500%

When the big banks lend to businesses on overdraft, they charge about 9% which is a mark up of 3,500%.

But the astronomical mark up is reserved for the ever-present, near essential credit cards. To credit card borrowers the banks charge 20% for their money , a mark up of 7,900% for their money. 79 times the normal retail mark up

Of course they have overheads, rent and staff to pay too like retailers, but you may have noticed that the bank computers do much of the work from answering your phone calls to assessing your ability to service and repay your loan. Like all retailers they have to write off some of what they have paid for. The dress shop has soiled or damaged clothing, the bakery has stale bread and the fruit shop has rotten fruit to throw out. Banks have bad debts to write off.

So it seems to me that our politicians sold us out to the moneylenders and have pocketed helpful donations and perhaps even helpful loans, ever since.

Not only did the politicians de-regulate the banks but they then cleverly sold off the government owned banks so there would be no honest inexpensive banks to compete with the big moneylenders who had been de-regulated.

But do our politicians like being owned by the moneylenders. I don’t think they do. Most politicians are honest people just like the rest of us, but until we support them they will not be game to take on the big banks.

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