QUESTIONS TO AND COMMENTS FROM THE FOUR CEO'S
Commonwealth Bank CEO - Ian Narev
Commonwealth Bank boss Ian Narev has defended the
bank’s exorbitant credit card interest rates, insisting it’s high-risk debt,
AAP writes.
Mr Narev was grilled today over credit card rates.
He was asked why the cash advance rate on the
bank’s low rate card was more than 21 per cent, when the official cash rate is
just 1.5 per cent. “To me, that’s gouging, that’s excessive,” coalition
backbencher Scott Buchholz said.
“It is a highly profitable part of the business,
how is that fair?”
Mr Narev said he understood the concerns but
argued the bank did not encourage its customers to take on high amounts of
high-risk debt.
The
bank was balancing the needs of customers and shareholders when it made
decisions on rates, he said.
He conceded there were some products “which could
probably be a bit more cheap”.
“I don’t think there’s any product under which I
could sit here in good conscience and tell you we’ve made the absolute perfect
balancing decision,” he said.
“What we can’t do or shouldn’t do as a bank ... is
cut rates significantly only then to have to jack them up very significantly
when as is always the case in economic cycles, things go a different way,” he
said.
Mr Buchholz asked Mr Narev whether he’d consider
lowering credit card rates, given he told the committee he was willing to listen
to suggestions. Two or three per cent would be a good start, he said.
“I said we came in here with a spirit of openness
and listen to suggestions and we will,” Mr Narev replied.
Westpac CEO - Brian Hartzer's
The LNP's Scott
Buchholz commenced by asking how much revenue Westpac's credit card business
generates.
"Where would you
allocate the profit to?" he asked.
"We don't have a credit card business," Mr Hartzer responded, noting credit
cards fell within multiple business units.
After a brief
circular exchange Committee Chair David Coleman intervened by asking Mr Hartzer
to confirm he wasn't answering the question.
"What I'm saying is
that we're not able to
answer that question because we don't have a credit card business per se,"
Mr Hartzer said.
David Coleman
noted the Committee might be in-touch about this issue.
NAB CEO - Andrew Thorburn
NAB are not shifting
on changes to their credit cards, saying the business is 'under pressure'.
They said the card
business could "sustain significantly lower profitability and even a loss in
some areas".
After ANZ said some
credit card interest rates were too high, Liberal Scott Buchholz has asked about
whether NAB have an appetite for lowering their rates.
Thorburn said the credit card business has some of the 'highest losses in our
portfolio' and one third of their customers were on a 13.99 per cent 'low rate'
card.
Buchholz said the
rate was 21.74 per cent on the same card rate for cash advances. NAB say again
it is not the most profitable part of their business.
So, so far NAB have
not suggested they are keen to lower card rates.
ANZ CEO - Shane Elliot
How profitable are
credit cards?
Labor’s
Matt Keogh is curious about the profitability of credit cards.
“I’m not sure that we disclose that,
but I’ll give you a rough idea. It would be, after tax, a couple of hundred
million dollars,” Elliott says, acknowledging it is a large amount of money
albeit a small share of the banks’ overall earnings.
Elliott says the bank is currently looking at
changing the parameters for credit cards to ensure people can avoid
financial hardship. “It’s the right thing for us as well ... It’s not in our
interest to have customers with products they can’t service,” he says.
Deputy CEO Graham Hodges says the bank’s
“hardship teams” are very effective at managing people who express concerns
about servicing their debt. Over the last year, they’ve started looking at
“pre-hardship” characteristics to approach clients whom they suspect might
be at risk.
“Some people actually welcome that approach
from the bank. Other people are indignant that we’ve approach them,” Hodge
says.
Credit card costs examined
Elliot has given Liberal MP Scott Buchholz an
illustrative breakdown of costs in the credit cards business.
If the credit card
section were a stand-alone business, he says, -
*
25 per cent of the cost would be the cost of funds.
*
another quarter would be features - insurance, reward points etc
*
while about a third are the administrative systems needed.
*
the balance, slightly less than 20 per cent, is lost through bad debts and
fraud.
“It’s not the largest in size, so it’s a
relatively small part of the bank if you will,
but ... the return
on equity is higher on average,” he says.
He expects greater advances in technology will
allow better targeting of credit card interest rates based on the risk of
the customer. What about Card Limits, and Minimum Repayment each
month?
Elliott says the average rate paid by ANZ
customers on credit cards is about 11.5 per cent, given interest-free
periods and other concessions offered to customers
as lures to sign up.
Hodges says about two-thirds of the people who have high-rate cards don’t
pay any interest. “Why they are attracted are the free insurance, Flybuys
points, all the perks,” he says.
Elliott says he wants the ANZ should look at
the way it advertises credit cards.
Given so few people actually pay the full
interest rate, the higher advertised rate is “probably doing us more damage
than good in the way it looks”, he says.
AFR reported ANZ CEO responses - Oct 6 2016 at 1:59 AM
ANZ Banking Group will consider cutting interest rates on its
credit cards and introducing a pricing regime based on borrower risk, after
members of the committee quizzing bank CEOs this week suggested banks are
making excessive returns from the product.
During a three-hour hearing in Parliament House on Wednesday,
Liberal MP Scott Buchholz said there was "ample capacity" for rates on
credit cards to be lower to defray the feeling among ordinary people that
they are being straight-out gouged.
"As a general proposition I think you're right," ANZ chief executive Shayne
Elliott replied.
He also said ANZ would look to
harness big data to discover low-risk customers that could be offered lower
interest rates.
"The way [credit
cards] have developed over time is largely one-size-fits all...it doesn't
really matter about your credit history - that's the product, and you chose
from our menu of protects that you think is most suitable," he said.
"I think with
new technology and new risk management it is going to be easier to offer
more targeted [pricing]. I think that is going to come and I think that will
be part of the disruption that will come... to allow more risk based pricing
in cards."
Mr Elliott agreed to provide the committee with the bank's
returns on equity for its credit cards, as well as its housing and personal
loans.
Mr Elliott said the profit earned by ANZ from its credit card business is "a
couple of hundred million dollars" a year, compared to the overall profit
for the bank of about $7.5 billion. He said the profits from credit cards
are falling.
"There's no real growth in that business and the cost of running it,
particularly the rewards and sometimes the credit cost, are going up so
that's eating into the profit base," he said.
The average rate paid
by ANZ customers is 11.5 per cent but the headline rates on
some cards are closer to 19 per cent. Around half of all customers retire
their debt at the end of each month so do not pay any interest.
"I think there's opportunity for us frankly to take a bit of
leadership on this and to something better, not just around internet rates
but the fee structure of the cards," he said.
"I think that's in our customers' interest and ours. I think we can do a
better job."
ANZ has admitted that credit card profitability is "well above" most of its
other businesses, but committed to looking at lower rates and more robust
credit limit assessments.
Under intense questioning from Labor MPs Pat Conroy and Matt Keogh, and
Liberal MP Scott Buchholz, ANZ's chief executive Shayne Elliott admitted
profits from its credit card business were "well above" the bank-wide return
on equity of around 12 per cent.
"Returns on the cards business are higher than average, that is undoubtedly
true," he said.
"It's not the highest, but it's one of the higher ones."
However, Mr Elliott added that the bank has seen a decline in the return
from credit cards.
Mr Elliott said the apparent contradiction of credit card profits declining
while interest rates have remained stubbornly high is
due to an increase in the cost of
reward programs.
He also said many of the bank's
customers never pay any interest on their credit card accounts.
"About half of people who have cards don't run any debt, they just use it
for transactional capability and, if anything, you'd say that's on the
rise," he said.
His deputy chief executive Graham Hodges added that the proportion of people
with interest-bearing card debt on higher rate credit cards is even lower.
"About two-thirds of the people who take those high rate cards don't pay any
interest on those in any month, and some do pay some occasionally, and
there's virtually none who would
hold debt on those cards," he said.
Credit card rate and fee cut 'an opportunity to take
leadership'
Although the ANZ boss did indicate "an appetite" to consider reducing credit
card costs.
"I think there's an opportunity for us, frankly, to take a bit of leadership
on this and do something better around, not just the interest rate, but also
the fee structure on cards," Mr Elliott told the committee.
Mr Hodges said ANZ went through its data over the past year to identify
customers who might be using an inappropriate type of credit card, finding
about 1 per cent of its customers fell into this group.
He said about 17 per cent of that group were "in pre-hardship, heading to
hardship".
"Then we had conversations with those customers to say, 'wouldn't you be
better off in this product or this product?'," Mr Hodges explained.
Earlier in the hearing, ANZ had revealed about 0.3 per cent of its credit
card customers had sought hardship provisions from the bank, such as
repayment holidays or reduced interest rates.The bank said around 90 per
cent of those people got into financial hardship due to various life events
- such as illness, unemployment or relationship breakdown - after their card
was issued.
That led Labor MP Matt Keogh to enquire about the other 10 per cent and
whether they should have been issued the credit card in the first place.
"It would appear that, of those people that are coming to you with hardship,
nine-in-10 you're saying something happened after they were issued the card
that was outside of our control, and one-in-10 of them seem to have had
something that was already a problem at the time that the card was issued,"
Mr Keogh said.
Mr Elliott took that question on notice, but acknowledged that ANZ needed to
do a better job when assessing credit limits to ensure they were affordable
for the customer.
"I'd have to check whether we are currently changing the parameters, it's
something we are looking at," he responded.
"It's the right thing to do for us as well ... it's not in our interest to
have customers in products that they can't service."
The Australian - 6 Oct 2016
Commonwealth Bank of Australia chief executive Ian Narev has resisted
providing returns across products, claiming these are commercially sensitive
for competitive reasons.