Banks risk backlash on rates delay
Will the banks pass along the interest rate cuts announced by the RBA on Tuesday? Chris Zappone reports.
Australia's big four commercial banks stood to reap an extra $5.6 million in pre-tax profit for each day they held off passing on this week's interest rate cut to borrowers, according to one industry estimate.
ANZ Bank, however, was the first to move following the RBA's decision to cut rates on Tuesday. The bank trimmed its borrowing rates by the full 25 basis points, announcing the move about 12.30pm today. NAB followed suit in late afternoon.
The more-than $5 million per day the banks were pocketing while considering whether to follow the RBA's lead - which would have exceeded $2 billion over a year - is money that could have been passing through the cash registers of retailers around the country as shoppers spend up before Christmas.
Banks are reaping the benefits of the RBA rate cut. Photo: Frances Mocnik
Analysts' estimates vary about the exact savings banks will withhold as they gauge other factors over the coming year, such as the cost of sourcing funds from overseas - the banks' main rationale for not passing on RBA rate cuts in the recent past.
One other feature of the estimates is the sensitivity of the analysts making them. Calls this morning failed to find any analyst with the major banks willing to put his or her name to the estimated bank savings.
Rate tracking agency Mozo said the industry estimates matched its own calculations, which put the banks' combined pre-tax profits saving of $5.5 million a day from delaying rate changes.
“The banks are clearly sitting on their hands,” said Mozo managing director Rohan Gamble. “I think the longer it goes on the more you have to believe they’re not going to pass along the rate cut in full.”
Stand-off
With the other major banks, ANZ had been in a stand-off since Tuesday over which bank will move first to announce their rate plans, such as how much of the 25 basis-point cut to pass on borrowers and when. The banks pointed to the rising cost of wholesale fund and difficult market conditions stemming from the European debt crisis as a reason not to pass the reduction on in full.
The big four banks posted cash profit of about $24 billion last financial year.
Yesterday, the nation's top banking lobby the Australian Banker's Association warned banks may not pass along the full rate cut to borrowers.
“It's not going to be a surprise to the RBA should one of more banks decide not to pass along the full rate cut,” said ABA chief executive Steven Munchenberg. “The RBA would have factored that into their decision.”
Bank of Queensland and MEBank have passed along the full 25 basis point cut to their customers, as have a slew of credit unions.
A credit to the unions
Credit unions to move on rates include bankmecu, My Credit Union, Police and Nurses Mutual Banking, Police Credit Union, Northern Beaches Credit Union, ECU Australia and Heritage Bank.
The peak body for credit unions and mutuals urged customers to consider switching to them, echoing earlier comments by Treasurer Wayne Swan that dissatisfied Australian banking customers should shop around.
"If customers of the big banks are fed up they should check out a mutual," said Abacus - Australian Mutuals chief Louise Petschler. "Credit unions, building societies and mutual banks offer all the same products and services with the same regulation, protection and guarantees as the big banks."
"Even before the RBA’s rate cut mutuals were offering on average 40 basis points better rates on loans than the big banks, which is a pretty good start," she said.
czappone@fairfax.com.au
This reporter is on Twitter: @chrizap
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