Australia’s big four banks reported record profits this week off the back of high inflation and the rising interest rate, while those same factors drove hundreds of thousands of people into mortgage stress and the rest of us accepted we’d likely never even have mortgages to stress over.
On Thursday, National Australia Bank (NAB) announced a $4.07 billion profit in the six months to March 2023 – a 17 per cent increase from the same period a year ago.
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On Friday, ANZ revealed its profits for the same six-month term: a record $3.8 billion, up 23 per cent.
On Monday, Westpac reported a 22 per cent rise to a six-month profit of $4 billion.
And on Tuesday, Commonwealth Bank (CBA) – Australia’s largest lender – reported a $5.2 billion half-year result ($2.6 billion in the March quarter alone) up 9 per cent from a year earlier.
ANZ attributed its success to “favourable deposit margins from a rising interest rate environment”.
In a video message publicising its results, ANZ chief executive Shayne Elliott said he was “the first to agree that there has been a very supportive environment for the financial sector.”
In CBA’s trading update, chief executive Matt Comyn said: “Despite the challenging global economic outlook, Australia is relatively well-positioned given the strength of our banking system.
“Many of our customers are feeling the strain of higher interest rates and the rising cost of living. We remain committed to supporting our customers through these challenges.”
The banks’ combined $16 billion half-year profits — or about $88 million per day of juicy profit for the shareholders — precipitated from the rising official interest rate set by the Reserve Bank of Australia (RBA).
The RBA has been on a mission to drive down Australia’s rate of inflation, which currently sits at a 30-year high of 7.8 per cent, since May last year. One proven and effective way a central bank can apply downward pressure is to raise the interest rate to essentially dissuade people from buying unnecessary stuff, like investment properties. Remember, there was a lot of that during lockdowns – when the interest rate was as low as it gets.
Back then, bank loans were cheap and the housing market was uncertain, so buyers seized the opportunity to invest during the slump. This demand rocketed house prices into space.
But after 12 months and 11 interest rate rises to today’s 3.85 per cent, it can be argued the RBA’s plan hasn’t worked as well as it was supposed to.
While house prices dropped about 10 per cent across the board in the last 12 months, the fall doesn’t balance the 30 per cent value gains made in 2020 and 2021. And they’re already rising again, sooner than expected.
For a couple with a $600,000 mortgage, their loan repayments have increased by about $100 a month since early 2021. It may not sound like much, but with everything else getting more expensive, and wages remaining typically static, people are, to put it bluntly, running out of money. This is where the promised security of homeownership cracks.
It’s estimated 25 per cent of mortgage holders, or 1.1 million people, are experiencing or at risk of mortgage stress. The latest interest rate jump alone pushed about 171,000 more homeowners into the red, and that number is rising.
For the rest of us, without so much as a toe in the door, landlords have passed much of that stress onto renters. Capital cities have seen rents rise by up to 25 per cent in a year – more than accounting for the 3 per cent interest rate rise.
Now, we look to governments to tug us out of the vortex with measures like affordable housing packages, higher income support payments for those living below the poverty line, strengthened tenancy laws and fair wages.
Will Tuesday’s Federal Budget make any real difference? Stay tuned.
Aleksandra Bliszczyk is a Senior Reporter for VICE Australia. Follow her on Instagram, or on Twitter.
