The Reserve Bank has indirectly accused Australia's major banks of profiteering on interest rates, saying the recent series of ''super-sized'' rate rises had outpaced increases in the banks' funding costs.
In an analysis of rate movements, the RBA said the major banks were the worst offenders on excess pricing, with lending rates outpacing rises in funding costs by as much as 25 basis points - or a quarter of 1 per cent - since the onset of the credit crisis. This had translated into billions of dollars in additional revenue.
The comments by the RBA appear to contradict the claims of big bank executives that they have had to lift rates by more than official increases to cover their funding costs.
The comments come amid signs that households are again starting to feel the squeeze on loan payments, new figures showing ''mortgage stress'' on the rise following a string of interest rate rises.
Recent earnings updates from the big four banks confirm their strong emergence from the global financial crisis to be among the best-performing in the world, with combined profits this year expected to exceed $20 billion.
In its latest quarterly bulletin, the RBA acknowledged that since mid-2007, overall funding costs for Australian banks had risen significantly. This mainly reflected the higher cost of long-term debt, which banks use to help fund lending activity, as well as fierce competition for deposits.
To claw back some of these costs, banks have sought to protect their profit margins by raising lending rates by more than increases in the Reserve Bank's official cash rate.
''For the major banks, the increases in lending rates have more than fully offset their higher funding costs,'' the RBA said.
While the RBA analysis did not provide a breakdown of pricing across different categories of lending, it said the higher margins had supported returns to shareholders as well as offset losses from higher bad debt charges.
Recent profit updates by the banks have revealed that their interest margins - the difference between the cost of funding and lending - have returned to levels last seen around mid-2007, before the global crisis.
But banks maintain that their increase in margins has been due largely to their passing on higher rates to business customers.
''That's not just a margin for mortgages, that's a margin for all types of lending to big business, small business and mortgages,'' said Australian Bankers Association chief executive Steven Munchenberg.
''That increase in margin is reflecting the increase the banks are charging for riskier forms of lending, as is appropriate,'' he said.
With competition re-emerging and a host of regulatory changes looming, Commonwealth Bank of Australia chief executive Ralph Norris last month indicated banks were expecting margins to come under pressure again, saying current margins were ''not too far off the high-water mark''.
Other banks have noted that competition has started warming up in business lending, which is likely to limit further price increases.
While all banks matched the RBA's 25 basis point increase in official rates this month on their variable home loans, Westpac sparked a furore in December when it lifted interest rates by 45 basis points - nearly twice the central bank's rise.
Westpac blamed higher funding costs, particularly long-term funding, for the large increase. NAB was the only big bank at the time to cap its rate move at 25 basis points.
Meanwhile, figures released by Fujitsu Consulting show ''mortgage stress'' has risen to a 16-month high with increases in interest costs outweighing improvements on the jobs front.
About 218,700 households were at risk of having to sell, refinance or lose their homes in February, up 2 per cent from the previous month.
''Across Australia the average loan size since 2005 has risen by 40 per cent, underlining that affordability remains a major issue,'' said Fujitsu executive director Martin North. ''As interest rates rise, this leverage effect will have a significant impact on the local economy.''
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