Pressure is mounting on the big four banks to explain why they haven’t shared the full benefits of Tuesday’s rate cut – after research found interest rate moves had earned them more than $4.7 billion since 2016.
Treasurer Josh Frydenberg and opposition leader Anthony Albanese slammed the banks for putting short-term profits ahead of the broader economy yesterday.
And data from comparison site Canstar suggests they might be on to something.
Figures provided exclusively to The New Daily show the difference between the official cash rate and the standard variable home loan rates of the big four banks has been steadily growing since 2016.
While roughly half of banks’ funding comes from deposits, the RBA’s official cash rate also has a major effect on banks’ borrowing costs.
And so a growing gap between the official cash rate and standard variable home loan rates, at a time when other funding costs are also declining, suggests banks could have passed on the rate cuts in full if they wanted to.
But they would rather look after the interests of shareholders.
The big four banks’ failure to pass on Tuesday’s rate cut in full comes after a round of out-of-cycle rate hikes, too.
Without an RBA rate cut in sight, Westpac stung borrowers with a 14 basis point hike in August 2018.
ANZ and CBA followed hot on their heels a month later, lifting variable rates by 16 and 15 basis points respectively. And Westpac delivered a 12-basis-point blow in January.
Canstar financial services executive Steve Mickenbecker said the banks were justified in making those out-of-cycle hikes, as a sizeable jump in wholesale funding costs had squeezed margins significantly.
But he said they didn’t drop their rates when funding costs started to decline at the beginning of 2019 – choosing instead to cash in on the higher margins.
“Looking back, you say, OK, you hiked rates out of cycle – that was redressed by the markets but you didn’t give it back – then you didn’t give the full 50 basis points of the last two cuts. You gave back around 40,” Mr Mickenbecker told The New Daily.
“And at the same time you’ve lowered your term deposit rates by this much, and you’ve lowered your online savings accounts, so you shouldn’t be holding it back now.”
Cheap home loans are available, though. Just not to existing big four customers.
Mr Mickenbecker said the big four banks lost a lot of business after the Hayne royal commission, and are subsequently offering big discounts to new customers in a bid to claw back market share from smaller rivals.
“And that’s been subsidised quite frankly by existing borrowers, who are paying a bigger margin,” Mr Mickenbecker said.
RateCity.com.au research director Sally Tindall agreed that existing home owners had borne the brunt of major lenders’ scramble for market share.
Given banks were private businesses, she said it wasn’t surprising that “when forced to decide between the interests of customers and shareholders, often it’s the customers that draw the short straw”.
“Many banks have chosen not to pass on the full cut to variable mortgage holders, in the hope that existing customers will just grin and wear it,” Ms Tindall said.
“And history has shown that all too often that’s exactly what Australian mortgage holders do.”
According to comparison site Mozo, the big four banks will earn a collective $979.7 million a year from not sharing the full benefits of the RBA’s latest move.
Since 2016, they have pocketed more than $4.7 billion from interest rate cuts.
Given a handful of lenders did pass on Tuesday’s rate cut in full, Ms Tindall said borrowers with a steady job and a bit of equity in their home had every chance of finding a better deal.
“Call your bank, find out how much of the rate cut they’re going to pass on but, more importantly, check what your rate actually is. Then take your home loan shopping to see how it sizes up to the competition,” Ms Tindall said.
“Right now lenders are offering rates as low as 2.69 per per cent to owner-occupiers paying principal and interest.”
The New Daily asked all the big four banks to explain why they had cut interest rates on term deposits and online savings accounts by more than they had cut interest rate cuts on home loan accounts.
NAB said: “The costs associated to provide these products (term deposits) is based on a range of factors, including the prospect of a change in the cash rate, borrowing costs and economic pressures.”
ANZ did not respond before deadline.
CBA referred us to its latest statement.
Westpac declined to comment.