NAB fails to pass on RBA rate cut
Tuesday April 7, 2009
National Australia Bank Ltd will keep its standard variable mortgage interest rate at 5.74 per cent, despite a central bank rate cut.
NAB personal banking head Lisa Gray cited the bank's rising cost of funding as preventing it from passing on any of the Reserve Bank of Australia's 25 basis point reduction to the cash interest rate on Tuesday.
'Whilst customer interest rates have been falling, the actual cost of banks providing a mortgage has increased significantly since the credit crisis hit in mid-2007,' she said in a statement.
'Our pricing needs to responsibly reflect these increased funding costs.'
NAB's decision comes after rival Commonwealth Bank of Australia cut the interest rate on its standard variable home loan by 10 basis points to 5.64 per cent earlier on Tuesday.
Ms Gray said NAB had passed on more of the RBA's series of cuts, amounting to 400 basis points, since September than any of its competitors.
'Our customers have experienced a total interest rate reduction of 3.87 per cent per annum on a standard variable rate mortgage - a saving of $806 per month in interest on an average $250,000 home loan,' she said.
CBA said the new rate cut will be effective from April 17.
The bank's base variable rate, which excludes an offset account, will drop to 5.13 per cent, from 5.23 per cent, from the same day, CBA said in a statement.
CBA retail banking head Ross McEwan said the bank's cost of wholesale funding remained 'extremely high'.
'As old funding matures and is replaced at much higher rates our average cost of funding continues to rise,' he said.
'Intense price competition on term deposits is also lifting the cost of retail deposit funding versus the official cash rate.'
The interest rates currently applying to other big bank standard variable mortgages are 5.74 per cent for National Australia Bank Ltd and 5.91 per cent for both Westpac Banking Corp and ANZ Banking Group Ltd.
CBA's major domestic competitors - as well as St George Bank, which is now part of Westpac, and Suncorp Metway Ltd - are reviewing their rates on home loans and other products.
The banks have been at pains to stress the rising cost of funds, including the cost of customer deposits and the cost of borrowing in offshore wholesale markets, as a major barrier to passing on rate cuts in full.
RBA governor Glenn Stevens said in a statement accompanying the central bank rate cut that a resolution of banking system difficulties in the US had led to an improvement in global financial markets.
'Sentiment remains fragile, however, and the contraction in economic activity is affecting asset quality of financial institutions,' Mr Stevens said.
Mr Stevens said overall demand for credit is weak, but credit for owner-occupied housing is picking up.
'Mortgage rates are at very low levels by historical standards and business loan rates are below recent averages, reducing debt-servicing burdens considerably,' he said.
'Nonetheless, the board judged that there was scope for a further modest adjustment to the cash rate.'
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