Who rate rises helped
While 1.5 million Australian mortgage holders were at risk of stress, Australia’s four major banks reported a combined record profit of approximately A$32.5 billion — up 12.4 per cent. Net interest income rose 13.8 per cent to A$74.9 billion. The mechanism is documented: banks pass rate rises to borrowers quickly and completely; they pass rises to depositors slowly and incompletely. The gap between the two is profit. The RBA’s rate cycle was a transfer from borrowers to banks.
The mechanism of the bank windfall from the rate cycle is not complicated. A bank earns money on the difference between what it pays for deposits and what it charges for loans. This difference is the net interest margin. When the Reserve Bank raises rates, the bank raises the rate it charges on variable-rate mortgages — typically within days, and fully. The rate it pays on standard transaction accounts rises much more slowly, and much less completely. The gap widens. Profit increases.
UNSW associate professor Humphery-Jenner described the dynamic plainly: banks are notorious for passing on RBA rate hikes to borrowers but not to depositors.
In FY23 — the year of the most aggressive tightening — Australia’s four major banks reported a combined record profit of approximately A$32.5 billion. That was an increase of 12.4 per cent on the prior year. Commonwealth Bank reported A$10.2 billion. NAB A$7.7 billion. ANZ A$7.4 billion. Westpac A$7.195 billion.
In the same period, more than 1.5 million Australian mortgage holders were at risk of stress. The two numbers are not coincidental. They are opposite sides of the same transaction.
Big four banks combined record profit: A$32.5 billion in FY23. The same year 1.5 million mortgage holders reached stress.
The NIM expansion: how A$74.9 billion works
Net interest income — the aggregate difference between what banks earn on loans and pay on deposits — rose to A$74.9 billion for the four major banks in FY23. That was up 13.8 per cent from the prior year. The RBA’s tightening increased net interest margins by an average of 9 basis points across the major banks. Combined with a 7.3 per cent increase in interest-earning assets, the result was a record income number.
Westpac’s NIM rose 2 basis points to 1.95 per cent. As the UNSW analysis noted: while two basis points might not sound like much, when the bank handles billions of dollars, it is significant.
By the first half of FY25 — after the RBA had begun cutting rates — the four major banks still reported a combined profit of A$15.5 billion. The temporary NIM windfall from the tightening cycle has partially faded. But bank earnings remained strong.
The structural reason: oligopoly and deposit stickiness
The asymmetric pass-through — fast for borrowers, slow for depositors — is not illegal. It is the rational behaviour of a small group of financial institutions with oligopolistic market power.
The banks sort of behave as a small pack. I think if you had more competition they probably couldn’t all pass on the interest rates so easily. But once one of them goes, the other three fall into line and that’s always been the way in Australia because we have what we call the four pillar policy where we only have four major banks.Tim Harcourt, UTS chief economist, SBS News, September 2023
The four pillar policy was designed to maintain competition by preventing the Big Four from merging. In practice, with only four major banks, the result is oligopolistic parallel behaviour on both mortgage rates and deposit rates. When one bank raises its mortgage rate, the others follow. When one bank fails to raise deposit rates, the others have no competitive incentive to offer more.
Depositors are also simply less responsive than borrowers. A mortgage borrower on a variable rate has no choice: the rate increases automatically. A deposit holder can move savings to a term deposit or a competitor — but many do not. The inertia of savers allows banks to delay deposit rate rises without immediately losing customers.
The Senate hearings: documented, unchanged
The Senate Economics Committee held multiple hearings on bank profits during the rate cycle. Bank executives appeared, defended their margins as reflecting competitive market outcomes, and noted that mortgage competition was intense. The government did not introduce a windfall levy on bank profits. Both major parties received donations from the banking sector.
Labor senators questioned banks on deposit rate behaviour at committee hearings. The answers confirmed the asymmetry but explained it as a competitive market outcome. The committee documented the problem. No structural change resulted.
The wealth transfer
Rate rises are a transfer from net debtors to net creditors. Australian household debt is approximately double the value of household bank deposits. This means that rate rises are net negative for the household sector in aggregate: borrowers pay more than depositors receive.
The beneficiary is primarily the banking sector. The NIM expansion represents the bank capturing the difference between what borrowers pay extra and what depositors receive extra. At A$74.9 billion in net interest income across the four major banks, even a small margin expansion translates to billions in additional profit.
The 13 rate rises were designed to reduce demand to fight inflation. They accomplished this partly by making borrowing more expensive for households. In doing so, they transferred purchasing power from borrowers — who could not reduce their mortgage — to banks, who widened their margins.
Correction Policy: If you believe any claim in this article is factually incorrect, contact us at corrections@therort.com.au with your evidence and a source. We will review and publish corrections prominently.
References & Sources
- [1] UNSW BusinessThink — big bank profits and interest rates (December 2023).https://www.businessthink.unsw.edu.au/articles/big-bank-profits-interest-rates-mortgage-stress-RBA— Big four banks combined record profit: ~A$32.5 billion (up 12.4%). Net interest income rose 13.8% to A$74.9 billion. Banks notorious for passing on rate hikes to borrowers but not to depositors.
- [2] SBS News — how big banks make profits in cost-of-living crisis (September 2023).https://www.sbs.com.au/news/article/how-are-big-banks-making-profits-in-a-cost-of-living-crisis/2kdw48sml— CBA operating income up 13%. NAB half-year profit up 17%. ANZ earnings up 23%. Tim Harcourt: banks behave as a small pack.
- [3] PwC Australia — major banks FY24 earnings pressure analysis.https://www.pwc.com.au/media/2024/major-banks-earnings-pressure.html— NIM fell 6 basis points year-on-year in FY24 from FY23 peak. Still one of the best results for the majors in recent memory.
- [4] TAMIM / KPMG — CBA record profit and bank NIM data.https://tamim.com.au/stock-insight/australias-big-four-banks-investment-powerhouses-or-risky-bets/— CBA NIM: 2.07% — highest among Big Four. Combined big four net profit 1H25: A$15.5 billion.
- [5] Investor Daily / KPMG — big four banks H1 2025 combined A$15.5 billion.https://www.investordaily.com.au/markets/57110-big-4-banks-reel-in-15-5bn-profits-digital-transformation-accelerates— H1 FY25 combined profit: A$15.5 billion (up 3.5%). Total net interest income: A$38.6 billion (up 4.8%).
- [6] UNSW / RBA — deposit rate pass-through asymmetry.https://www.businessthink.unsw.edu.au/articles/big-bank-profits-interest-rates-mortgage-stress-RBA— Banks pass rate rises to borrowers faster and more completely than to depositors. Depositors are sticky — they do not move savings frequently.
- [7] Senate Economics Committee — bank profit hearings 2023–24.https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics— Bank executives defended margins. No windfall levy introduced. Four pillars policy prevents structural competition.
- [8] RBA — ‘four pillar’ banking structure and competition.https://www.rba.gov.au/— Four pillars policy prohibits mergers between Big Four. In practice, pricing behaviour is oligopolistic.
- [9] EY — major banks FY23 full-year results.https://www.ey.com/en_au/insights/economics/australian-banking-full-year-results-2023— Cash rate rises and NIM peak flowed through to higher revenues. NIM peaked in 1H FY23.
- [10] ABC / SBS — Westpac, NAB, ANZ 2023 half-year profits.https://www.sbs.com.au/news/article/how-are-big-banks-making-profits-in-a-cost-of-living-crisis/2kdw48sml— Westpac H1 profit up 22%. NAB up 17%. ANZ up 23%. All four reported double-digit growth while 1.5 million households approached mortgage stress.
- [11] Australia Institute — wealth transfer analysis.https://australiainstitute.org.au/post/real-wage-falls-and-rate-rises-make-for-a-double-whammy/— Rate rises transfer wealth from net debtors to net creditors. Australian household debt is approximately double deposits.
- [12] CBA — FY23 record profit context.https://www.businessthink.unsw.edu.au/articles/big-bank-profits-interest-rates-mortgage-stress-RBA— CBA posted Australia’s largest ever bank profit: A$10.2 billion for FY23.
- [13] RBA — household debt vs deposits comparison.https://www.rba.gov.au/— Australian household debt is approximately 1.8–2x household bank deposits. Rate rises are net negative for the household sector in aggregate.
- [14] KPMG 1H25 — banks still profitable post rate cuts.https://www.investordaily.com.au/markets/57110-big-4-banks-reel-in-15-5bn-profits-digital-transformation-accelerates— Even as the RBA began cutting rates, bank profits remained strong at A$15.5 billion combined.
- [15] UNSW — net interest margin widened ‘dramatically.’https://www.businessthink.unsw.edu.au/articles/big-bank-profits-interest-rates-mortgage-stress-RBA— Westpac NIM rose 2bp to 1.95%. Net interest income up 13.8% to A$74.9 billion for big four combined.