Inquiry launched into banks’ interest rate gouging

THE Morrison Government will put greedy banks under intense pressure today, with a major inquiry into their failure to fully pass on interest rate cuts to customers.

Treasurer Josh Frydenberg will direct the Australian Competition and Consumer Commission to probe residential mortgage costs to address concerns that banks have been gouging hundreds of millions of dollars from customers.

Frustration within the Government has grown this year after the Reserve Bank cut interest rates three times to record lows, but the "Big Four" on average only passed on 75 per cent of savings to customers.

Mr Frydenberg said that that failure, when the cost of funds had come down significantly, left banks "exposed to the charge that they are putting their profits before their customers".

"This is not a good outcome for either their customers or the economy as a whole and comes just months after the royal commission shone a bright light on misconduct in the banking sector," he said.

"With this new inquiry, the Government is providing the banks with an opportunity to transparently account for their decision making and how they balance the needs of borrowers, savers, shareholders and the wider community."

Analysis of lending rates and mortgage repayments shows a borrower with a $400,000 loan on a standard variable rate over 30 years would save up to $519 a year extra if the Big Four had passed on the full rate.

It's also estimated the Big Four could have reaped up to $569 million in additional revenue since June due to not passing on the rates in the full and delaying those cuts for up to 20 days after the RBA.

The RBA in June said the lower cash rate should be fully passed to standard variable mortgage rates to ensure the "economy receives the full benefit" of the cuts.

The Big Four, which hold 75 per cent of residential mortgage debt, will be the major focus of the inquiry, however, smaller banks and non-bank lenders will also be probed.

The ACCC will be directed to use its special powers to ­better understand how banks make pricing decisions for residential mortgages and ­especially how they assess what rate cut to pass on after the RBA moves.

It will also look at whether new and existing customers pay different prices and at impediments to customers switching between lenders.

Mr Frydenberg said that results from the inquiry would "help inform policy makers" as they attempt to increase competition in banking and provide better deals for customers.

The ACCC will deliver a preliminary report by March 30 next year with the final report due six months later.