NAB’s decision to hold off on raising home loan rates is welcome news for customers, and may suggest the Big Four’s “pricing power is peaking”, experts say.
NAB announced on Monday it would leave its standard variable home loan rate unchanged at 5.24 per cent, despite significant rate hikes by Westpac, ANZ and CBA in the past fortnight.
This unexpected twist came at a time of heightening criticism of the big banks’ “cartel-like” power to set prices at the expense of consumers, after some of NAB’s major competitors hiked rates beyond what was necessary to meet higher costs.
But in a video message on Twitter, NAB chief executive Andrew Thorburn took a different path, revealing rates would remain on hold – though for how long is anyone’s guess.
“The longer we can hold this rate at this level, the longer you receive a benefit,” Mr Thorburn said.
Signalling the bank is seeking to atone for misconduct revealed by the royal commission, Mr Thorburn told customers the decision showed NAB’s commitment to “listen more and to act differently”.
However, investment firm Morgan Stanley said the surprise move could be an indication the power of Australia’s major banks to dictate market prices may be waning.
The four banks dominate home loan lending in Australia with about 80 per cent of the market, and have come under fire for the “oligopolistic” or cartel-like way in which they can act in tandem to push up prices for consumers.
“The delay in repricing by the majors in recent months suggests their pricing power is peaking,” Morgan Stanley equity analyst Richard Wiles wrote.
“The decision by NAB suggests that scrutiny of conduct and competition is affecting management decision-making and will weigh on profitability and share price performance,” Mr Wiles said.
However, he pointed out that any delay by NAB could be short lived as the bank “has not ruled out future repricing” and has stated that it will “continue to regularly review its rates”.
The decision to delay hiking rates also means that NAB will pit its customers interests against its shareholders, with a six-month delay in repricing forecast to reduce NAB’s 2019 financial year ‘earnings per share’ by 1.5 per cent, according to Morgan Stanley.
“We doubt NAB’s lower [standard variable rate] will drive a material pick up in new loans given the amount of front book discounting, but it will reduce the risk of switching by existing customers,” Mr Wiles said.
‘Good call’, PM tells NAB
Newly-installed Prime Minister Scott Morrison has followed Treasurer Josh Frydenberg’s lead, weighing in on the ongoing mortgage rates saga despite his original staunch opposition to the banking royal commission.
After Westpac made the first move, raising standard variable home loan rates by 14 basis points or 0.14 per cent to 5.38 per cent at the end of August while pointing to “sustained increases” in the cost of wholesale funding, Mr Frydenberg told reporters the bank should “explain to the Australian people why it lifted rates”.
On Monday Mr Morrison tweeted that the rates-stay was a “good call” by NAB. “They seem to get it,” he said.
Good call by @NAB not to lift mortgage rates. They seem to get it.
— Scott Morrison (@ScottMorrisonMP) September 10, 2018
Monash Business School’s John Vaz told The New Daily that the government’s new stance on banks was “absolute hypocrisy”.
“They opposed the royal commission for a long time. Now they’re trying to be seen on the side of ordinary people,” Dr Vaz said.
“They had regulatory power and chose not to get involved. It’s a political game because the elections are approaching.”
According to Dr Vaz, the big banks are used to operating in a similar way to a cartel.
“Traditionally they have almost acted like a cartel … one bank raises, the rest follow, a bit like petrol prices,” Dr Vaz said.
When it comes to the question of why NAB hasn’t yet followed suit, Dr Vaz said there could be multiple motivations.
While none of the big banks are “without blemishes”, the royal commission has revealed particularly unsavoury findings about NAB including “charging dead people for services” through wealth management firm MLC, Dr Vaz said, which may factor into the decision to delay a rates rise.
“NAB can probably be more competitive by making that change in the short run and being perceived as more responsible. It’s a marketing move.”