Time for a Sense Check
Attention all property owners and small business operators,
The Banks are clambering over each other for your business and there has never been a better time to check your interest rates!
Long gone are the days where you can negotiate an interest rate and trust your bank to ensure the competitive deal you signed up for remains competitive in the medium term.
There are two key factors that are driving divergence between the interest rates paid by existing (loyal) customers and those rates offered by the same banks to new customers.
(1) Firstly, some of the ‘Big 4’ banks incentivise their relationship managers and business development managers to value new business over client retention. When bonus season comes around and staff performance is measured, it is those who write the most new business who are rewarded the most. Client retention, a seemingly obvious goal for any bank, is sometimes viewed less favourably. Now that’s not to say that banks don’t strive for client retention, of course they do. The key point is that banks primarily grow their profit by writing new business, not by ensuring their loyal, long-term clients always get the best deals. In an increasingly competitive banking sector, particularly as it relates to home loans and small business clients, it can sometimes be a race to the bottom on rates where a ‘win at any cost’ mentality is adopted. Such a mentality will only change when more banks remunerate their staff based on client retention and not just new business.
(2) Secondly, competition is really heating up amongst the ‘Big 4’ banks in the home loan and small business market. This bodes well for everyone with a mortgage or business loan. Competition in the retail banking space is nothing new but a close perusal of recent results announcements by the ANZ and CBA identifies a new trend amongst the ‘Big 4’ which is further fuelling the fire. Both the ANZ and CBA have been affected by losses in their institutional banking divisions, the main cause of which has been a marked downturn in the mining and mining services industries. Institutional banking divisions can deliver big profits in the good times, but as the economy slows and credit markets tighten, these profits can quickly turn into loan impairments or worse, losses and loan write-offs. Bank CEOs don’t value volatility. When their respective division heads present annual budgets, they crave consistency. Institutional banking is not always consistent. Retail and business banking is more consistent, delivering steady year on year growth. So it’s no surprise that both ANZ and CBA simultaneously announced a stronger push into home and business lending and simultaneously scaling back their institutional banking divisions. To quote the ANZ half year earnings announcement on 9th May: “our goal is to make buying or owning a home or starting, running and growing a small business in Australia easy” and “we want to focus our efforts on attractive areas where we can carve out a winning position”.
So what’s the real lesson here for all of us? Quite simply it’s the need to regularly review the interest rates you’re paying on your loans! That is easier said than done with few having the time to review the broad spectrum of deals offering by the ‘Big 4’ banks and broader banking market. The competitive environment is such that new deals and lower rates emerge on a weekly basis and that hot deal you received last week can soon become lukewarm!
Let us take up the fight on your behalf. We value our clients above all and the job doesn’t end when you become a client of Constantia Finance Partners. The day you settle your loan with us is just the beginning and we strive to ensure that you’re always getting a fair deal from your financier.
