Ever Wondered How Banks Make Record Profits Every Year?
- Lenny Briffa
- Feb 13
- 4 min read
Updated: Mar 4
It seems like every year, the headlines are the same: major banks announcing billions in record profits. But have you ever stopped to ask how they achieve this consistently, even when the economy is tough?
The answer lies in a simple acronym: NIM (Net Interest Margin).
The "Spread" Strategy
In simple terms, NIM is the difference between the interest a bank pays to savers and the interest it charges to borrowers. Banks grow their profits by widening this gap. They strive to pay savers as little as possible while charging borrowers as much as the market will tolerate. A fraction of a percentage point difference here generates billions in revenue.
The Loyalty Tax
The most common way banks manage their NIM is by preying on customer inertia.
The Lure: They offer flashy "introductory" rates or cash-back offers to attract new customers.
The Switch: Once you are in the door, those competitive rates often quietly creep up (for borrowers) or down (for savers).
Banks bank on the fact that you are busy. They know that finding a better deal and switching banks takes time and effort, so they charge existing customers a "loyalty tax"—higher rates than what they offer new clients.
Why Banks Want You "Direct"
You may have noticed big banks pushing their "direct" channels (apps, branches, direct websites) rather than encouraging you to use a broker. This is a strategic directive. Why? Because they know that a good broker is a gatekeeper. Brokers keep banks honest by forcing them to compete for your business. When you go direct, you remove the competition, making it easier for the bank to widen their margins at your expense.
The Broker Advantage
If you deal directly with a bank, the onus is on you to monitor the market annually and negotiate. If you don't, you are likely overpaying.
A good broker does the heavy lifting for you:
Best Interests Duty: Unlike banks, mortgage brokers are legally required to act in your best interests.
Market Comparison: We shop around to find a competitive option tailored to your needs, not just one bank's products.
Annual Reviews: We don't just set and forget. We can review your loan annually to ensure it remains competitive.
Hassle-Free: We handle the paperwork and process, making it as painless as possible.
Our Commitment at Orca Home Loans
If the idea of constantly monitoring interest rates and negotiating with banks sounds unappealing, we are here to help. At Orca Home Loans, we are committed to doing our utmost to secure competitive rates for our clients—both today and in the future.
Don't pay the loyalty tax. Let us do the work for you.
Frequently Asked Questions (FAQ)
1. What is Net Interest Margin (NIM)?
NIM is the difference between the interest income a bank earns from borrowers and the interest it pays out to depositors (savers). Banks aim to maximize this margin to increase their profits.
2. Why is my interest rate higher than the rate advertised for new customers?
This is often called the "loyalty tax." Banks frequently offer discounted rates to attract new business but may not pass these savings on to existing customers. Over time, the gap between your rate and the market leader can widen significantly.
3. Why do banks prefer I go to them directly instead of using a broker?
When you deal directly with a bank, you only see their products. This reduces competition and allows them to maintain higher margins. Brokers compare lenders across the market, forcing banks to offer more competitive rates to win your business.
4. Is it hard to switch banks if I find a better rate?
It can be time-consuming if you do it alone, which is what banks count on. However, a mortgage broker manages the application, discharge, and settlement process for you, making the switch as seamless as possible.
5. How often should I review my home loan rate?
We recommend reviewing your home loan at least once a year. The market changes specific lending policies and rates frequently; a rate that was competitive 12 months ago might not be competitive today.
6. Does using a broker cost more than going to a bank?
In most cases, using a mortgage broker for a residential home loan is at no cost to you. We are paid a commission by the lender you choose, but our recommendation is based on your best interests, not the lender's or the broker's.
7. How does Orca Home Loans help me avoid the "Loyalty Tax"?
We don't just set up your loan and disappear. We aim to build a long-term relationship where we regularly review your loan against the market. If we find a better option or negotiate a better rate with your current lender, we let you know.
 | About the Author Lenny Briffa is the founder of Orca Home Loans, a Sydney-based mortgage brokerage helping Australians buy with confidence. With over 25 years’ experience in banking, Lenny combines deep industry insight with practical guidance for everyday borrowers. Through this blog, he shares clear, educational perspectives on lending, property, and financial decision-making, empowering readers to navigate the home loan journey with clarity. |
Things to be aware of
This article provides general information only and is intended for educational and illustrative purposes. It does not constitute credit advice, financial advice, or a recommendation to engage in any property or lending strategy.
Orca Home Loans is a mortgage broking service and does not provide taxation, legal, or financial planning advice. Readers should seek independent professional advice tailored to their circumstances before making financial decisions. Credit approval is subject to lender assessment and eligibility criteria.
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