Banks charged $1.17bn in home loan fees

While banks continue to get the majority of their fee income from households’ credit cards (making up 41 per cent of the money coming in, at $1.71 billion, an increase of $36 million from the year before and the highest annual total on record), fees on housing loans made up the second largest portion - at 28 per cent, or $1.17 billion.

However, the RBA data shows that income from fees on housing loans dropped by 7 per cent in 2018.

This was largely driven by lower volumes of new and refinanced housing loans over the year.

“The decline in fee income from housing loans also partly reflected reductions in unit fees on a number of products, with some banks waiving account servicing fees for customers with package arrangements,” the RBA outlined.  

ATM fees removal impacts banks’ fee income

Overall, the RBA noted that the income banks received from fees was down 6.5 per cent on the year before, despite having “grown moderately in recent years”.

The central bank analysis shows that the drop was primarily driven by a “significant decrease” in fee income from household deposits, largely due to banks scrapping ATM fees in late 2017.

Indeed, the statistics show that banks received nearly 20 per cent less income from household deposits last year than in 2017. The fees collected on deposits dropped to below the billion dollar mark for the first time, coming in at $912 million - a decrease of $223 million.

The decline in fee income also reflected a decline in the number of ATM withdrawals, which has been associated with a fall in the use of cash for transactions as consumers move to electronic payments and electronic payments cards (such as Apple Pay and Android Pay).

Income from exception fees on transaction deposits – which include overdrawn, dishonour and honour fees – also decreased substantially, the RBA said. This owed to lower overdrawn fees, both because of reductions in unit fees on some accounts and fewer overdrawn accounts. Fee income from non-transaction deposit accounts was little changed.

Business fees on the rise

While fees charged to households accounted for around one-third of banks' fee income; fees charged to businesses accounted for the remainder.

Total fee income from businesses increased by 3 per cent in 2018 to $8.79 billion, almost entirely due to higher fee income from small businesses - particularly from the continued increase in income from merchant service fees on card transactions (although merchant service fees charged to large businesses also increased).

Fees charged for business loans also increased slightly (0.6 per cent, or $23 million), while fee income from business deposit services and bank bills both decreased.

Fee income from businesses continued to be made up mostly of fee income on loans (43 per cent) and merchant service fees (36 per cent).

The increase in fees charged for business loans in 2018 reflected higher fee income from small businesses, partly offset by a decrease in the fees charged to large businesses. The changes in fee income from both small and large businesses owed to movements in account servicing fees, which made up the bulk of business loan fees.

Lower average unit fees contributed to the decrease in fees from large businesses, the RBA found, adding that overall lending to large businesses increased notably over the survey period (while lending to small businesses increased only slightly).

Commenting on the statistics, the CEO of the Australian Banking Association (ABA), Anna Bligh, said that banks were listening to the community and making “real changes” to the way they do business, benefiting Australian customers.

“While power bills, gas bills, healthcare and other items are going up, bank fees charged to households are going down, dropping by 6.5 per cent over the last 12 months,” Ms Bligh said.

“The drop in fees is a direct result of banks listening to community concerns and abolishing many fees which were out of step with community expectations.

“Abolishing fees on ATM withdrawals is a major reason behind largest drop to fees for close to a decade,” she commented.

“Overdrawn and dishonour fees have also been reduced by banks over the last 12 months as they have listened to customers who told them that they were unreasonable.

“Banks continue to work hard to earn back the trust of the Australian public, through abolishing fees that are seen as out of step with the community and other initiatives such as the new Banking Code of Practice which will deliver new rights and protections for customers when it goes live on 1 July this year,” Ms Bligh concluded.

[Related: Banks to begin rolling out financial abuse requirements]