Westpac has cut its standard variable home loan rate by 37 basis points to 7.09 per cent, deciding not to pass on the full half percentage point by the RBA.
Its variable rate on business loans has been cut by 50 basis points.
Westpac group executive retail and business banking Jason Yetton downplayed the influence of the RBA's rate cut in the bank making the decision.
“It is now widely acknowledged that the link between the RBA’s cash rate and the actual cost of money to banks – in effect our own borrowing costs – plays an increasingly small role," he said. "Other ones, such as the relatively high cost of deposits and wholesale funding, have assumed critical importance,” said Mr Yetton.
“In particular, the price of deposits including term deposits has a major impact on our decision making."
Westpac is the third of the four major banks to announce their mortgage rate cuts after the Reserve Bank surprised the households by slashing 50 basis point from the cash rate on Tuesday.
Customers of ANZ have to wait until next Friday to learn where the cost on its standard variable rate mortgage is headed, in keeping with ANZ's controversial independent pricing strategy.
The RBA helpfully published the latest major bank net interest margins (NIMs) in its Statement of Monetary Policy, which, I should note, I have only glanced at reluctantly (more on this later). What stands out is that ANZ has the widest margin between the cost of its funding and the price of its products. This is not news in and of itself – it has been the case for several years.
So what will ANZ do when it makes its now controversial independent interest rate decision on the second Friday of the month? On the two previous occasions it unilaterally jacked up rates (in February and April), and ANZ only increased them by six basis points. Following the April increase, its standard variable rate loan was actually on par with CBA's, but higher than NAB's.
We know ANZ’s overall NIMs are much wider than Commonwealth Bank’s (see the chart below), although this probably reflects more corporate lending and relatively greater offshore banking exposures. Thus the wider NIM also compensates it for taking on higher risk.
ANZ has copped flak for its attempts to decouple from the RBA, and by waiting until this Friday it will likely be the last bank not to pass on the full 50-basis-point cut. There is a subtle margin play here. By not announcing its rate decisions until the second Friday of the month, and then delaying, typically, the actual change in its rates another week (i.e., the change does not normally take effect for another seven days), ANZ can benefit from lower short-term funding costs while waiting as long as possible to reduce its product prices. That is, it can lock in wider margins for longer.
If I were ANZ I would want to win back some PR points after the beatings I have copped following the February and April announcements. So I would pass on more than any other major bank, probably around 41 to 43 basis points if I had to pick a number. A 42-basis-point pass-through would give me a one basis point lower SVR loan than CBA, which enables me to argue that I am the second cheapest major.
Because it has passed on more of the RBA's cut than any other major, this should, in principle, be positive for the brand. And it will be the last bank to report doing so. The beauty for ANZ is that it can then chisel back a few basis points of margin if it needs to over the coming months based on its independent pricing model. Assuming unchanged RBA rates, I would make these variations so small as to not warrant material media attention (i.e., a basis point or two here and there). But, collectively, they mean a great deal to ANZ's bottom line.
National Australia Bank plans to stick with its mortgage discounting strategy even as the move weighs on profits at its retail bank.
Chief executive Cameron Clyne, wouldn't rule out a review of the strategy by the end of the year, which involved the bank pledging to have the lowest cost mortgage pricing of the big four banks, but was happy with move which has spearheaded a turnaround to NAB's Australian retail bank.
"We're very comfortable where the personal bank strategy is at this point in time," Mr Clyne told an analyst briefing.
"Its not to say we won't continue to review (the strategy). But it's delivered the outperformance over the last couple of years," Mr Clyne said.
Earlier, NAB reported a cash profit of $2.83 billion for the six months to end-March, up 6 per cent from the same time a year earlier. Momentum, though, slowed from the September half where cash profit growth came in at 1.3 per cent.
Still, NAB's retail business suffered a savage 20 basis-point drop in margins from this time last year as the bank was forced to raise expensive funding to feed its fast growing mortgage book.
This squeeze was behind a sharp reversal in earnings momentum for the bank's retail business.
ANZ Bank cut the rate on its standard variable mortgage by 37 basis points, joining other banks in holding back some of last week's rate reduction by the Reserve Bank.
The new mortgage rate for ANZ will be 7.05 per cent, effective from May 18. The bank did not disclosure its plans for deposit rates.
“At this month's review we noted that the RBA's recent decision to reduce the cash rate has impacted domestic funding sources giving us scope to reduce lending rates by 0.37 (percentage points)," said ANZ CEO Australia Philip Chronican.
“We continue to work hard to ensure we are competitive despite sustained funding pressure driven by the high rates we are paying to our 2.9 million deposit customers relative to the Reserve Bank's cash rate and the ongoing volatility in wholesale money markets,” he said.
ANZ is the last of the four major banks to announce its mortgage rate changes after the RBA cut 50 basis points from the cash rate on May 1.
The ANZ rate cut is roughly in line with the average mortgage rate for the top four banks - at 36.5 basis points.
ANZ’s decision to break ranks with rivals in terms of pushing through out-of-cycle interest rate rises is turning off customers, with the banking major taking a hit in satisfaction rankings.
After being top-ranked in terms of customer satisfaction for most of the past decade, the lender now risks becoming the laggard of the big four banks.
Latest figures released by Roy Morgan Research shows the overall bank sector has taken a negative turn in satisfaction over the past three months, mostly as customers react to a series of out-of-cycle interest rate rises.
The latest figures are until the end of April, so they don’t take in the fallout to the sector holding back some of this month’s hefty 50 basis point cash rate cut.
National Australia Bank and Commonwealth Bank - two banks that regularly came last in satisfaction for much of last decade - are now locked in a battle for top spot.
Better known for its aggressive pricing on mortgages, NAB has held its lead among the big four, increasing satisfaction by 0.2 percentage points to 77.7 per cent.
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