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Australian Banks Face Competition Inquiry Into Mortgage Rates

The probe adds to scrutiny on the banks, which are fighting to restore trust after revelations of a string of scandals.

Australian Banks Face Competition Inquiry Into Mortgage Rates
A pedestrian walks past the Reserve Bank of Australia (RBA) headquarters in the central business district of Sydney, Australia. (Photographer: Lisa Maree Williams/Bloomberg)

(Bloomberg) -- Australia’s big banks are facing a probe by the competition regulator into mortgage pricing after failing to pass on in full the central bank’s latest cuts to official rates.

The nation’s major lenders have been under sustained political criticism for holding back some of the rate cuts, and on Monday the government said it had directed the Australian Competition and Consumer Commission to investigate.

The probe will focus on how mortgages are priced, the difference in rates paid by new and existing customers, and barriers that may prevent customers switching lenders, Treasurer Josh Frydenberg said in a statement.

Australia’s Banks Slammed for Holding Back on Rate Cuts

The big-four banks -- Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, National Australia Bank Ltd. and Westpac Banking Corp. -- have passed on an average 57 basis points of the central bank’s 75-point cut in rates, Frydenberg said.

“The banks have left themselves open to the charge that they are putting their profits before their customers,” Frydenberg wrote in an opinion piece published in the Daily Telegraph on Monday.

“Australians rightly expect that when they purchase the biggest asset of their life that lenders will compete vigorously and fairly, enabling them to secure the best possible deal,” he wrote. “What they do not expect, nor appreciate, is when the big banks capitalize on their market dominance and their customers’ loyalty and refuse to pass on in full rate cuts.”

A previous ACCC inquiry into mortgages concluded the major banks seemed more concerned with maintaining mutually beneficial home-loan pricing rather than competing strongly.

The probe adds to scrutiny on the banks, which are fighting to restore trust after a yearlong inquiry into misconduct unveiled a string of scandals. Costs for compensating customers for previous misconduct are escalating and the low-rate environment is crimping margins.

“There is cynicism in the broader community about interest rates for home loans,” ANZ Bank Chief Executive Officer Shayne Elliott said in a statement. “We know we have not done a good job in explaining our position and we will be working hard to ensure this process delivers results.”

To contact the reporter on this story: Emily Cadman in Sydney at ecadman2@bloomberg.net

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Peter Vercoe, Edward Johnson

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