ANZ contemplates cutting credit card rates
Lower lending rates and improvements to risk-based pricing structures considered.
During a parliamentary inquiry into Australia's big four banks this week, ANZ chief financial officer Shayne Elliott revealed the bank is looking into ways to reduce credit card rates, while evaluating fee structures and improving risk-based pricing for customers.
The House of Representatives annual review of Australia's four major banks, conducted by the Standing Committee on Economics, questioned ANZ's appetite for reducing interest rates on credit cards, given the banks returns on its credit cards business is higher than its overall average return on equity.
"We absolutely have an appetite to look at it... The reality is that returns on the cards business are higher than average," Elliott told the enquiry.
However, he added that returns have been shrinking at a fairly healthy and rapid rate over the last decade, due to increasing costs associated with the bank's rewards programs.
"I think there is an opportunity for us, frankly, to take a bit of leadership on this and do something better around not just the interest rate but also the fee structure and cards," Elliott said.
The inquiry committee suggested improvements in risk-based pricing for credit cards.
Elliott said new technology and greater risk management techniques would make it easier to offer more targeted interest rate scaling.
"I think that's going to be part of the disruption that will come with new technology, that will allow more risk-based pricing in cards, for example, but also in personal loans and other things," he said.
When asked why, when the Reserve Bank of Australia (RBA) moves interest rates up or down, these monetary policy settings have no effect on the bank's credit card business, Elliot pointed to decelerating growth in the credit card market and substantial gains in the area of debit cards.
"We need our lending rates to be as low as possible to retain and grow our lending business while still maintaining a fair return for depositors and shareholders. While the RBA cash rate is an important ingredient in our cost of funds, it is not the only ingredient," he said.
Most credit cards have fixed rather than variable rates, meaning they're not directly tied to the cash rate.
The bank was also quizzed about the 0.3% of credit card customers who had sought hardship provisions.
While 90% of these customers who fell into financial hardship as a result of unexpected events, such as illness or loss of income, did so after they were issued credit cards, 10% were issued cards despite these circumstances.
Elliott acknowledged that ANZ's assessment of credit limits and customer affordability could be improved.
"I would have to check whether we are currently changing the parameters; it is something that we are looking at," he said.
"It is not in our interest to have customers in products that they cannot service."
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