By Paulina Duran
SYDNEY (Reuters) – Australia’s three biggest lenders said on Wednesday they would not cut rates for the majority of their home loan customers, even after the central bank pledged to keep rates near zero for some three years, as the lenders attempt to safeguard profits.
Instead, Commonwealth Bank of Australia , Westpac Banking Corp and National Australia Bank said they would cut interest rates for small- and medium-sized businesses and lower fixed rates for mortgage holders to record lows.
By not passing the rate cut to the majority of their home loan customers, the banks are saving between 3 to 5 basis points on their net interest margins, JPMorgan analysts said, which have shrunk from more than 3% in early the 2000s to below 2% now.
Australia’s central bank on Tuesday cut its cash rate to 0.1% to prop up the economy from the country’s worst downturn in a generation, vowing not to raise it for at least three years.
But the four banks that hold about 80% of the country’s mortgages – including Australia and New Zealand Banking Group – already have more money that they can use, amid weak demand for credit.
Lower rates, therefore, hurt them.
CBA first announced a 100 basis point cut in its four-year fixed rate home loans for owner-occupied customers to 1.99% a year, its lowest ever, and trimmed rates for businesses. Westpac and NAB then followed suit.
CBA and Westpac shares fell as much as 2.8% each on Wednesday, underperforming the broader market <.axjo> which was trading 0.3% higher. NAB shares were 1.6% lower.
“We are in an extraordinary period with the official cash rate at a historical low and unconventional monetary policy measures in place,” said Richard Burton, head of Westpac’s consumer division.
“It is critical we carefully manage interest rate changes.”
Up to 40% of the funding of Australia’s Big Four banks is rate insensitive, meaning it doesn’t benefit from rate cuts, according to JPMorgan.
A number of smaller non-bank lender competitors, which fund themselves through capital markets and therefore benefit directly from the rate cuts, have passed on the full rate cuts to home loan customers.
(Reporting by Paulina Duran in Sydney and Anushka Trivedi, Rashmi Ashok and Nikhil Kurian Nainan in Bengaluru; Editing by Sherry Jacob-Phillips and Jacqueline Wong)