Banks are so angry because their pricing power is under attack | The Sydney Morning Herald

Pricing power is something shareholders crave.

Smaller banks such as Bendigo Bank will get a lift from the tax. Photo: Brendan Esposito
It refers to a firm’s ability to set prices for the goods and services in the market – to be a “price maker” – rather than to have them dictated by the forces of competition (being a “price taker”).

Pricing power

Stockbroking analysts believe Westpac, Commonwealth Bank, National Australia Bank and ANZ Bank have pricing power most companies could only dream of.

They have an 80 per cent share of the mortgage market, and we all know it is time-consuming and a bore to take your entire bank account to a rival lender in order to get a lower interest rate.

That consumer inertia has allowed the lenders to repeatedly deal with deep-seated challenges in global banking by “re-pricing”, or raising interest rates on loans, most importantly mortgages.

CLSA analyst Brian Johnson says they’ve had “unfettered” pricing power, which they’ve used to maintain profitability when the regulators introduced tougher capital rules, which lower returns.

“Post the Global Financial Crisis the Australian banks have seemingly enjoyed unfettered pricing power to increase variable housing rates to offset structural NIM / ROE pressures,” Johnson says.

But now, the banks’ pricing power looks set to be tested, on many fronts. That should make it harder – but not impossible – to pass on the levy to customers.

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Banks are so angry because their pricing power is under attack.