Recently our Treasurer, Josh Frydenberg, announced an ASIC investigation into the rate setting by the major banks. While the announcement was applauded by many, its main focus is to be the pricing of residential mortgages (home loans) only.
What about existing commercial borrowers?
Indeed, rate cuts are good news for many; however, commercial borrowers often miss out on the benefits due to their rate being determined by the bank as opposed to the market. And, frustratingly, your loyalty to a bank is often overlooked during this process.
Each year banks review your facilities and pricing based on your performance and an assessment of market conditions. They will quote certain risk factors that are put into their models which calculate a cost of capital – if certain factors change, pricing of your facilities will increase, based on the bank’s assessment that there is a higher cost of capital.
Interestingly, banks RARELY come back to you to advise that positive movements in some of the criteria that they have used to increase your price, have resulted in your pricing going DOWN. Annual review letters are handed over with the pricing not mentioned and customers, happy to know that their facilities have been renewed and/or increased, sign the annual reviews and get on with business, missing out on an opportunity to reduce their pricing.
Attracting new borrowers instead
Meanwhile, banks are still keen to write new business, and so they use attractive reduced interest rates to lure new customers. This means that, in essence, your unrecognised loyalty is being used to attract new customers to your bank, instead of savings being passed onto you. And there is nothing more galling for a loyal customer of a bank to find out that a friend or rival has received a rate that is much lower than their current rate!
So what should you do?
It is a valid question to ask whether your loyalty is being recognised by your bank.
At Balanz, we understand how the banks’ risk models work so we can assist with strategies to nudge your bank to reviewing your facilities and the pricing. If a nudge does not work, we can approach the market to see if there is benefit in moving. Often there is a risk reward – pricing may be similar but better structures, terms and conditions can be obtained, to great benefit for businesses.
So, there can be plenty of upside from a well-researched request to your bank – and our Balanz team is well equipped to help you.
Ready to check if your bank recognises your loyalty? Balanz can help.
Contact Cameron Horne on firstname.lastname@example.org or 0423 604 446
Balanz – Your Partner in Business Finance
Brisbane – Sydney – Melbourne – North Qld