The competition watchdog has accused the big banks of “oligopoly behaviour” in setting interest rates, advising that some home borrowers could save up to $5000 a year by pressuring their bank for a discount or by switching to a cheaper lender.

“Banks were reluctant to decrease their deposit rates and it costs the banks money to keep the deposit rates up higher than otherwise,” Mr Sims said.
“They decided that they wouldn’t pass on the full reduction in mortgage rates and make a bit of profit to cross subsidise the depositors.”
“The banks had wider profitability issues they were trying to balance.”
Treasurer Josh Frydenberg and RBA governor Philip Lowe last year criticised the banks for failing to fully pass on a reduction in bank funding costs, including money sourced from international funding markets, deposits and the RBA cash rate.
The ACCC report said headline variable interest rates were not an accurate indicator of what most home loan customers pay.
About 90 per cent of big four bank customers received some sort of discount off their headline variable rate.
About 13 per cent of the big four banks customers received a discount of at least 1.5 percentage points.
About 11 per cent of borrowers received no discount.
The average interest rate difference is about 0.26 of a percentage point between new borrowers and existing borrowers.
For borrowers that have been with their bank for more than five years, they on average pay 0.40 of a percentage point more than a new customer.
“The longer you stay with the bank, the more you pay,” Mr Sims said.
“For every $200,000 on your loan that 40 basis points is worth $850 a year so it really matters.”
“I’m not saying banks are doing anything wrong, but if you’re loyal to your bank you’re paying more than you need to.”
A customer with no discount could potentially save the average discount of 1.28 percentage points off their principal and interest home loan for owner-occupiers.
“For example by asking their bank for a lower rate, refinancing to another home loanor switching lenders, this could result in interest savings of nearly $5000 in the first yearalone for an average sized new loan of $386 000,” the ACCC said.
The report was commissioned by the Treasurer last October in response to a public backlash about banks not fully passing on the slashing of the RBA cash rate three times to 0.75 per cent last year.
The cash rate is now a record low 0.25 per cent, squeezing bank interest margins because deposit rates won’t be cut below zero.
In a statement on Monday, Mr Frydenberg said: “These findings underline the importance of greater transparency and competition in the sector and need for customers to remain highly engaged and shop around to get access to the best deal including from their existing financial institution.”
The interim report covers January 1 to October 31 2019.
It does not make recommendations. The final report to the Treasurer due by November 30 will examine impediments to home loan customers switching between lenders.
Mr Sims said it was banks that has created the political and public focus on the link between the RBA cash rate changes and mortgage rates.
“They don’t tend to regularly adjust mortgage rates as their cost of funds go up and down,” Mr Sims said.