Banks fail to fully pass on rate cuts
April 8, 2009
Four large lenders have matched the Commonwealth Bank of in passing on less than half of Tuesday's official cut to interest rates.
The move comes after the banking industry was criticised heavily by the federal government for not passing on in full the interest rate cut by the Reserve Bank of Australia (RBA).
ANZ Banking Group, Westpac, St George Bank and Suncorp Metway Ltd announced they would shave 10 basis points from their standard mortgage rates after the RBA cut the cash interest rate by 25 basis points - or a quarter of a percentage point- to a 49-year low of three per cent.
The five banks decided to pocket 15 basis points of the RBA's 25 basis points cut, citing their inability to pass on a higher proportion of the rate cut because of their rising cost of funding.
"Tight competition for customer deposits and volatile wholesale funding markets are keeping our funding costs high," ANZ head of Australian operations Brian Hartzer said on Wednesday.
"As market conditions allow, we will continue to pass on further reductions in funding costs to our customers," Mr Hartzer said in a statement.
The banks' move comes after Prime Minister Kevin Rudd on Tuesday urged the banks to reconsider their positions after Commonwealth Bank stood alone as the only bank to cut its mortgage rates - albeit only partially by 10 basis points - following the RBA's rate cut decision.
"This decision is disappointing and I would urge them to reconsider," Mr Rudd told ABC TV.
National Australia Bank (NAB) now stands alone as the only major bank not to pass on any portion of the rate cut after it said higher funding costs blocked its ability to do so.
NAB personal banking head Lisa Gray pointed to a blowout in term funding costs and said the bank had passed on a 387 basis point cut to its customers during the RBA's series of cuts, now amounting to 425 basis points since September last year.
Westpac and St George have dropped their interest rates for business lending by the full 25 basis points, while ANZ has its interest rates for other lending categories under review.
Westpac group head of retail and business banking Peter Hanlon said it was the right time to pass on in full the latest interest rate reduction to its business customers because many were managing in difficult economic circumstances.
Westpac has also cut 25 basis points from six credit card products, effective from April 20.
Interest rates on standard variable mortgages offered by the four banks now stand at 5.64 per cent for Commonwealth Bank, 5.74 per cent for NAB, 5.79 per cent at St George Bank, 5.8 per cent at Suncorp Metway, and 5.81 per cent at both Westpac and ANZ.
CBA, St George Bank and ANZ's changes will apply from April 17, while Westpac and Suncorp Metway's changes become effective from April 20.
