Fascinating story in the SMH:
Claims about higher funding costs by Australia’s big four have met with scepticism from an unlikely source - a large French bank, Societe Generale.
Tokyo-based Societe Generale Asia Pacific head of interest rate strategy Christian Carrillo said it was "almost mathematically impossible" that total funding costs for Australian banks were rising, as the sector argued this month, using it as a motive to lift mortgage rates independently of a Reserve Bank.
"The claim that the recent increase in mortgage rates is due to higher funding costs is very dubious," he said in a research note. "The mortgage hikes seem aimed at protecting their high profit margins."
Mr Carrillo said that an analysis of Australian Prudential Regulation Authority monthly banking statistics and RBA data on debt securities outstanding show that the source of most bank funding is onshore, where costs have actually been falling...
"Our calculations suggest that almost all sources of funding of Australian banks, except long-term overseas, are cheaper than their post-GFC highs and have kept falling since the second half of 2011 in absolute terms," he said.
Australian banks began to reduce their reliance on overseas markets for wholesale funding since the financial crisis.
“Australian banks are essentially an oligopoly," said Mr Carrillo. "They control most of the market anyway. They can effectively set rates where they want to."
"You have four big banks. They want to protect their profit margin. They can do it, so they do it.”
Mr Carrillo, referencing the RBA speech, said that the BBSW itself has gone down by 70 basis points over that period.
"So in the aggregate, the Australian banks' senior unsecured funding is down 10 basis points from June last year," he said.
