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Australia’s peak banking body, the Australian Banker’s Association, says loan margins remain at historically low levels and the recent interest rate rebellion was necessary to maintain a strong banking system.

But analysts argue that consumers are paying the price for less competition and a banking system that is grossly inefficient when compared to its global peers.

This month, all the banks chose to keep most – and in some cases all – of the Reserve Bank’s 0.25 per cent interest rate cut.

However the Reserve Bank’s head of financial stability, Luci Ellis, sees no reason for banks to always follow the RBA’s lead.

“There is no law – economic or parliamentary – that says they have to be lock-step in one for one, and there will be times when there’ll be more than one-for-one passed through, there’ll be times when there’s less than one-for-one passed through,” she said.

Editors note: It could be worse, if the RBA had not cut 25bps then the banks may have had to make the politically unpaletable decision to raise interest rates to maintain their margin and given the advertised deposit rates on offer it seems to me that they must have margin pressure on some of their funding costs.

The biggest concern is that the banks obviously feel the decreased level of competition in the non bank lending sector allows them to manage their margins with little regard for competition, its becoming an Oligopoly again.

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