It’s almost a week since the Reserve Bank lowered the official cash rate to 1.50 per cent, but most home lenders are staying tight-lipped on whether they will pass on the full benefit to home borrowers.

Only five lenders – Virgin Money, Homestar, P&N Bank, Bank of Sydney and Bank Australia – have announced they will cut variable home loan rates by the full 25 basis points.

And only one lender – Bank Australia – has confirmed it will extend the same reductions to borrowers with credit cards and personal loans.

All of the lenders providing full rate relief to home borrowers have not elected to improve rate offers on any of their deposit products.

In fact, two of the lenders – Bank of Sydney and P&N Bank – have cut some of their deposit rates presumably to maintain profitability.

Bank Australia is the only lender to extend the full rate cut to credit cards and personal loans.

There are more than 150 lenders who have not yet reacted to the RBA move, but financial products research house Mozo is hopeful that more institutions will pass on the full benefit to home borrowers in the next week.

“Apart from a handful of lenders, the second tier banks are following the lead of the major banks by failing to pass on the full RBA cut,” Mozo director Kirsty Lamont said in a statement.

“However, we have seen some of the challenger lenders pass it on and we think there are still many other lenders who will do the same.”

Bank regulator driving up deposit rates

The decision of the four major banks to pass on big rate increases to term depositors immediately after the August rate cut was unprecedented in recent banking history.

It was not only unusual for deposit rates to rise after an official rate cut, but it probably undermined the Reserve Bank’s objective of stimulating consumer demand in the economy.

The driver of the deposit rate increases was the Australian Prudential Regulation Authority (APRA), which has imposed pressure on all banks to reduce their reliance on short-term money markets to fund their lending to local borrowers.

APRA chairman Wayne Byers warned the banks against their continued reliance on short term wholesale funding in overseas markets. Photo: Supplied

APRA is helping the banks to prepare for the introduction of new funding standards that are designed to encourage them to raise more term deposits from Australian households.

In September last year APRA chairman Wayne Byers warned the banks and other deposit taking institutions that their continued reliance on short-term wholesale funding in overseas markets needed to be addressed.

“While the industry has reduced its reliance on short-term funding, wholesale funding and offshore funding, it has not materially reduced its reliance on the form of funding that is most likely and able to run in a crisis: short-term wholesale funding from offshore,” he told a banking conference last September.

“That might seem paradoxical, but as a percentage of total funding, short-term wholesale offshore funding is virtually unchanged from a decade ago.”

According to APRA, the solution to this problem is for the banks to expand their retail deposits.

That’s why banks are raising term deposit offers by as much as 0.75 per cent.

An emerging trend

Most leading banks responded to the RBA’s August board meeting by raising deposit offers for terms beyond 12 months.

The banks have been given fewer incentives by APRA to chase At-Call deposits. Photo: AAP

To be compliant with APRA’s funding rules they are beginning to compete for long-term deposits, which are perceived by the regulator as the most stable form of funding.

This explains why ANZ boosted the rate on its two-year term deposit by 0.75 per cent.

The banks have been given fewer incentives by APRA to chase At-Call deposits, so consumers with these accounts are less likely to benefit from the new competition inspired by the regulator.

In fact, some banks such as ING Direct and Macquarie have already reduced their rates on transaction accounts by 0.25 per cent.

Instead, ING has boosted its 12-month term deposit by 0.55 per cent.

Here’s a table of the rate moves on home loans and deposits announced since the RBA’s August rate cut: