Australian Banks Lose over $100 Million Following Ban of Exit Fees

by News Guy on June 27, 2012

(Guest Post)

There has been an unprecedented outcry about home loan fees; it is feared that the ban of exit fees is increasingly going to affect the normal operations of banks. While borrowers are smiling their way out, banks (on the other hand) are weeping tearfully wondering whether their cry will yield in any tangible results from the government.

On being interviewed, the Reserve Bank pointed out the federal government’s unilateral decision to put into effect an exit fee ban has seriously affected the income of banks. Most stakeholders feel that there is a strong mutual relationship between banks (such as Bankwest) and borrowers and therefore any stilted action that is taken in favour of borrowers is short-sighted and needs to be re-examined properly.

It is reported that banks have suffered a serious drop of more than $100 million in income. Experts have indicated that if this move is not going to be thought over again, it is obviously going to affect the performance of the economy.

“Banks play a very critical role in defining the direction of the economy. Therefore any decision made needs to involve bank stakeholders as they fully understand the implications of such a decision,” analysts have said.

“For instance, when home loan fees fall by over $3.8 billion, the government can not bury its head in the sand and assume that business will go on as usual,” analysts have added. They believe that this is so weighty a matter that calls for urgent and sober attention in a bid to get a long-term solution. Besides, the solution arrived at is expected to prevent a similar situation from recurring in future.

Banks were relying on credit cards since they (cards) fetched higher revenue mainly from home loan fees. However, after the government decided to ban exit fees, such benefits are no more. Statistics indicate that the year 2011 saw a sharp fall in home loan fees by over 10 percent. These results were in sharp contrast with the gains that had been made from 2005 to 2010.

Although, the Reserve Bank acknowledges the government’s attempt to protect its citizens, it emphasizes that banks are entitled to this protection too. According to the Reserve Bank, when the federal government banned home loan fees in July, 2011 on new housing loans, it opened the way for the current fall in banks’ income.

The explanation that Wayne Swan, the Treasurer offered in defense of the federal government’s decision did not seem to go well with most people including stakeholders in the banking sector. According to him, banning of exit fees was necessary in order to ensure that Australian families have enough funds in their pockets. In this way, they are able to do shopping for their households as they please.

However, the good news is that banks have been able to register a boost in its revenue by at least $350 million in bank fees from businesses. As a result, banks have been able to receive over $5 million as their overall revenue.

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