ANZ seizes the initiative
ANZ yesterday turned the banking war from one of words into a war of actions. The Big Four banks can't win the war of words they've been fighting over the past fortnight. Many Australians may understand banks need to make a return on capital, and that their funding costs are rising. But they don't care. Emotionally, they dislike the banks intensely, and the CBA's rate rise has crystallised those feelings in a way none of the Big Four expected. Every time the banks explain what they're doing, they damage themselves further. Yet the Big Four can win a war of actions. They have full control over their product pricing and a fair bit of control over their products. They can use that to push the banking debate in new directions and out of the sole control of political leaders. This is what the ANZ has done. By abolishing exit fees on home loans, ANZ looks responsive to public concerns - even if at the same time it's hiking variable rates by 39 basis points. Its move also makes life even more difficult for the many small players who need the exit fees more than the Big Four do. Finance Minister Penny Wong may claim that "we are likely to see the same sort of hostility to this [rate rise] decision that we have seen to the decision of the Commonwealth Bank". But the ANZ has eradicated exit fees and raised by less than the CBA. That means we'll probably see much less hostility than we saw after the CBA move. It's dawning on most of the major banks that they are operating in a new public environment, one where sullen public distrust has turned to open public hostility. And it's unlikely to change soon of its own accord: we face another 12 months of rate rises and swelling funding costs. The ANZ has begun re-orienting to this new public environment. Its rivals are now thinking about how to do the same. There's plenty they can do to change the game if they're willing to be bold. They could start by offering new products whose rate is linked to a benchmark rate, like banks in most of the rest of the developed world. This way, customers can fix their margin if they wish. (The product would probably be pricier than plain variable loans, but that's not the point.) They could de-link their rate rise announcements from RBA cash rate moves to reinforce that the two are not tied together. They could also start telling their customers more clearly where they expect rates to go. And the banks should be able to find even more ideas if they look.