Banks milk business fees to the tune of $7.3 billion to compensate for consumer cuts

Australian consumers are paying fewer bank fees but businesses are bearing the brunt of higher fees imposed by banks to cover the shortfall.

The Reserve Bank said yesterday that businesses paid an extra $400 million in bank fees with the banks’ fee income earned from businesses increasing by 5.5% in 2011 to $7.3 billion.

The bank fee hikes followed on from similar increases last year when bank fees reached record levels.

The Reserve Bank said bank fees were mainly based on fees earned on loans and bank bills, and occurred despite lending to businesses falling slightly over the year.

Fee income from business loans rose by 4.2% while fee income from bank bills (which includes charges for arranging bank bill facilities and accepting or endorsing bank bills) rose by a whopping 23.2%.

“The increase in fees on these facilities was largely due to the repricing of establishment fees and line fees, which are charged by banks to maintain credit lines regardless of use,” the Reserve Bank said in a bulletin published yesterday.

Of the bank service fee revenue from businesses, small businesses contributed 56% and large businesses 44%.

In 2011, fee income earned on business loans and bank bills accounted for just under half of all fee income earned by banks from businesses, compared with around 39% five years ago.

Fee income earned on business deposits fell by 3% in the year, even though business deposit balances increased by 15%.

The bank fee increases for business are in stark contrast to fee reductions for consumers, the Reserve Bank said that banks’ fee income from households declined by 7% in 2011, to around $4 billion last year after a $900 million fall in 2010.

Aside from exit fees, consumers also spent less on account-keeping fees, establishment fees and break fees for fixed-interest loans.

Peter Anderson, chief executive of the Australian Chamber of Commerce and Industry, told SmartCompany businesses will feel “short-changed” by the revelation.

“This is the latest in a long list of ways that the banking industry has put more pressure on their business customers and this will leave businesses more exposed to the market power of the banking industry,” says Anderson.

However, Steven Munchenberg, chief executive of the Australian Bankers Association, denied that the banks were slugging business to reduce fees for households.

“The ABA rejects this claim. Fee growth for businesses fell significantly this year,” Munchenberg said.

“Businesses, like households, saw reductions in fees across some products. For example, businesses experienced a 2.9% fall in fees on deposit accounts – the lowest level since 1999.

“This is the fourth consecutive year in which bank service revenue has fallen for business deposit accounts. Over that period, fees have fallen by $207 million or 25%. 

“Small businesses have also benefitted from a big fall in exception fees over the past three consecutive years, which have fallen 62% or $107 million in that time.”

“The Reserve Bank has noted that where business fees have increased, it is largely due to banks repricing risk in line with new international rules (Basel III).”