Business bank fees jump 14% as lending stalls

Bank income fees from businesses soared to a record $6.87 billion in 2010, up $838 million from 2009 according to a Reserve Bank of Australia report released yesterday.

The jump in business banking fees was used to offset household fees to banks, which dropped 16% to 4.2 billion, its lowest total in four years, saving households an average of $2.13 per week.

Total bank fees from businesses and households amounted to $11.1 billion.

The major source of bank income from businesses was loan fees, up 21% to 2.7 billion, while bank bills also recorded a huge increase up 52% to $574 million since 2009.

Bank analyst at East and Partners, Paul Dowling, said the significant increase in business fees was down to two key factors.

“In our view, there has been a sudden reduction in mortgage lending in the last six to nine months,” he told SmartCompany this morning.

“This has been compounded by a flat credit environment. Businesses aren’t buying and the only way for banks to grow is to stimulate fee income.”

Dowling says the jump in fees is particularly focused on small businesses.

“In the banks’ view, small business borrowing is much more risky than big business borrowing,” he says.

“Banks are charging higher establishment and commitment fees because their own income hasn’t been growing as much compared to the least three years.”

Council of Small Business of Australia’s chief executive, Peter Strong says banks are ignoring their small business customers.

“There is no one to make sure small business is getting similar treatment to any other person,” he told the Australian Financial Review.

“Most of that increase is going to be hitting small business because the big companies have the power to negotiate with the banks.”

Meanwhile, the drop in household fees drew praise from Treasurer Wayne Swan.

“The decline in bank fees is great news for Australian families and is a ringing endorsement of the Reserve Bank’s ATM reforms,” Swan said in a statement last night.

“The Government is committed to ensuring every Australian gets a fair go from the banking system.”