Banks May Find Bigger Profits Come At Too High A Price

Sydney Morning Herald

Thursday July 12, 2001

Khaldoun Hajaj. Khaldoun Hajaj is a policy analyst at the Financial Services Consumer Policy Centre and visiting fellow at the University of NSW Faculty of Law.

Banks ignore their unique obligations to the community when they discard long-term customers for a quick buck, writes Khaldoun Hajaj.

KEY players in Australian banking often complain that banks should be treated like other businesses. And no-one expects other businesses not to maximise their profits.

So we find Commonwealth Bank chief David Murray recently cautioning that his bank was ``no different from any business in Australia" and that it would have to review its services if it could not get ``a fair price" for them.

However, no other section of Australian industry enjoys the level of protection and regulation that banks do. Banks benefit enormously from operating in an environment that is soundly regulated by a very expensive, publicly funded system of checks and balances.

At the same time, Australian governments have seen to it that banks remain both competitive and profitable. In the 1980s, for example, Australian banks were falling over themselves to lend to the most egregious generation of Australian entrepreneurs. When the loans went bad, the system guaranteed it was the Australian consumers who had to make up the massive shortfall by paying interest rates at18 per cent and higher.

Now we find nearly a quarter of all bank branches disappearing in the past five years, over-the-counter fees increasing by almost 400per cent since 1993, traditional services being wound back apace, and the poor being made scapegoats for many of Australian banking's problems.

Murray's warning to customers was an attempt to shift the public discourse from attacks on banks and their neglect of the poor and disadvantaged to one where the prominence of profit is accepted as the norm.

Banks are hoping for a sea change which would see consumers drop their demands for continuing access to branch banking and for fair prices for basic account services. However, banks have a social obligation to provide basic banking to all Australians because:

* their products are practically compulsory;

* they earn super profits; and

* they enjoy a special relationship with government and the community.

In recent months, some Australian banks have began to address this issue.

The National Australia Bank, for example, asked the Rev Tim Costello to chair a working group of community organisations to recommend how to alleviate the causes of the community backlash against the banking industry. The committee made some very important recommendations aimed at giving greater banking access to the disadvantaged. The NAB responded with a package of affordable banking services such as fee-free banking for the poor and disadvantaged and 40 free transactions per month for the disabled.

While this package may immediately affect the NAB's ``bottom line", in the long term the goodwill generated will be more valuable than costly advertising campaigns.

Banks have become hated because they have allowed the pursuit of profit to dominate their thinking.

Bank executives complain that the poor adversely affect their profitability, that staff need to be sacked and branches closed in the interests of efficiency, yet defend their own multimillion-dollar salaries and bonuses.

Australian banks can no longer pretend that the business of existing customers will be lifelong. Regaining the goodwill of the community is critical to their long-term prosperity.

© 2001 Sydney Morning Herald

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