Australia’s ‘Big Four’ banks pocket central bank cut, trim fixed loan rates

By Paulina Duran



a sign on the side of a building: A woman exits the ground floor of an office building with Westpac logo in Sydney


© Reuters/Loren Elliott
A woman exits the ground floor of an office building with Westpac logo in Sydney

SYDNEY (Reuters) – Australia’s four major banks said on Wednesday they would not cut rates for a majority of their home loan customers, even after the central bank pledged to keep rates near zero for about three years, as the lenders attempt to safeguard profits.

Instead, the so-called “Big Four” lenders – Commonwealth Bank of Australia , Westpac Banking Corp , National Australia Bank and Australia and New Zealand Banking Group – said they would cut interest rates for small- and medium-sized businesses and lower fixed rates for mortgage holders to record lows.


a sign in front of a tall building in a city: FILE PHOTO: The logo of the National Australia Bank is displayed outside their headquarters building in central Sydney


© Reuters/DAVID GRAY
FILE PHOTO: The logo of the National Australia Bank is displayed outside their headquarters building in central Sydney

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.



a sign on the side of a building: FILE PHOTO: The logo for the Commonwealth Bank of Australia adorns their head office in central Sydney


© Reuters/David Gray
FILE PHOTO: The logo for the Commonwealth Bank of Australia adorns their head office in central Sydney

The Australian 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.

The four banks, which hold about 80% of the country’s mortgages, already have more money that they can use amid weak demand for credit.



a person standing in front of a crowd: A pedestrian is reflected in the window of a branch of the Australia and New Zealand Banking Group (ANZ) in central Sydney


© Reuters/STEVEN SAPHORE
A pedestrian is reflected in the window of a branch of the Australia and New Zealand Banking Group (ANZ) in central Sydney

Video: RBA tipped to slash interest rates (Sky News Australia)

RBA tipped to slash interest rates

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Lower rates, therefore, hurt them.

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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.

ANZ was the last of the four banks to announce that it would slash its fixed home loan rates across one- to five-year terms by between 0.2% and 0.4% per year.

Shares of CBA and Westpac each ended 2% lower on Wednesday, underperforming the broader market <.axjo>, which closed down 0.1%. NAB fell 1.1% and ANZ finished 0.9% weaker.

“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)

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