Greed driven banks seek riskier loans

Never satisfied, banks today want the federal parliament to allow them to lend voters into even  more risky loans. I mean risky for the borrowers, not risky for the banks. The banks hold the mortgage over the properties and guarantees for the loan repayments. The borrowers risk everything including their loan repayments which can easily be eaten up in bank charges if the loan terms can’t be met. That's the story on the banks in today's media.

Understand before signing

Few business borrowers ever read the restrictive and punitive loan contracts through which the borrowers sell their souls to the bank with little redress. The banks make huge profits out of clever Debt Traps for family and medium sized businesses.  Once the borrowers cannot make the scheduled loan repayments, the bankers jack up the interest rates. So if the repayments were hard before, they become impossible then. That can continue for years before the bank actually forecloses and takes all the repayments and the proceeds of the mortgaged property. Banks are piggy-backing on the business profits. In many cases I find that the ban k is actually making more in interest out of the business than the owners are.

Bank profits skyrocket 

Bigger profits  are keeping Big Bank Bosses in the style to which they have become accustomed, while many Aussie businesses battle to pay their  bills on time.  $20,000 to $100,000 a DAY is what big bank CEOs earn. Not bad pay, for a day! Massive increases in profits back those pay packets. In 2023 CBA earned 4,500 times, in real money terms, what it earned in 1971 when I started my Chartered Accountancy practice. No wonder I converted it to a banking consultancy after banks were deregulated and they started bleeding businesses dry..

Debt enables Big Banks to suck money out of the economy

The huge increase in demand created by high population increases and the large amounts of money  is increasing prices. The ability of people to put much of their spending “on tick” with the banks has created a spending boom like never seen before. When we no longer need money to buy what we want, life is fabulous. Champagne and caviar all round. Problem is that the interest just adds a little bit more to the price of what we buy. If we leave it on the account or replace it with an overdraft, then it can make a huge difference to the buy-prices of what we supply. The hangover begins as the debt becomes too high to bring down.  In that way businesses pay into Big Banks large amounts of money for operational and capital purchases, but big banks are cutting back on what they spend on business customer services. When we ring the bank, we may be told that due to an abnormal increase in phone traffic our wait time will be about 1 hour. Money is moving from consumers to banks via many businesses selling on credit, so banks are rich and the customers are poor whilst business margins are squeezed. The gap widens and people need to borrow more money to compete in the market. That is when the Debt Trap works best. Businesses needing to pay creditors just want the loan to fund the stock. Only later will they think about what happens if they don’t do what the loan contract, that they have not read, requires.

Not just consumers but public services too

That the big banks are sucking money out of our economy in profits  explains why our economy cannot afford to fund schools, hospitals, police and emergency services and many of the other public services on which businesses depend, whether for staff, security or services. The pay rates for university educated nurses, teachers, police and emergency workers, even in the highest ranks, pale into insignificance compared to the Big Bank CEOs. That affects their ability to buy  our products.

100% loan mark up

There is no need for banks to charge the interest rates they do. Home owners are charged 5% to 6% ; business overdrafts 8% to 10%. Banks can pay as little as 1.5% on savings accounts, 5% is a bit higher than most term deposit rates. So banks are paying 1% to 5% and lending at 5% to 10% or more. That means means a mark up or gross profit margin of 100% on the cost of money.  Most businesses are lucky to enjoy a mark-up of 50%. That is where the Borrow Better site saves businesses a lot more money than going through a bank-paid broker or just going to their own bank without a bargaining chip.

Customer alternatives

Bank customers have a few good options. First they can hunt around to find the best possible bank loans. Rather than go to that bank broker  they can use the inexpensive Borrow Better website to quickly find and negotiate the best loan deal from their viewpoint. We often negotiate with our suppliers, yet fail to do so with our banks. I have always found it very profitable. They can engage a Banking Consultant to help protect them financially and a lawyer to help with the legal protection they need. Assessing the short, medium and long term financial impacts of a loan is critical and mostly overlooked. They can also join Bankwatch and help persuade the elected parliament to develop a customer focussed banking industry with a government bank to boost customer care and provide fixed interest loans. It is important for individuals to do that, Industry organisations that do not involve their members in campaigns like Votergrams, usually have declining influence as they do not vote in elections. Votes are everything in democracy.

Look before you leap into a loan

Let’s stop and take a deep breath before we move on. It is always wise to expand the business then consolidate, expand then consolidate.