Australian banks refuse to give mortgage holders a break, say analysts

AUSTRALIAN banks are continuing to reap massive profits on home loans, despite the Reserve Bank slashing interest rates to a record low.

Banks don’t give Aussies a real break

PROFITS on home loans are “egregious”, one of the nation’s most respected bank analysts says.

The candid assessment came after Westpac gave back a piddling 0.03 per cent of the 1.66 per cent it pilfered from variable-rate mortgage customers since 2007.

But it appears unlikely there will be more give and less take if, as expected, the Reserve Bank of Australia lowers again later in the year.

Westpac’s 0.28 per cent reduction — made under new boss Brian Hartzer, who recently purchased a $13 million home in Vaucluse — followed a quarter-point cut by the Commonwealth Bank.

Westpac gave back a piddling 0.03 per cent of the 1.66 per cent it pilfered from variable-rate mortgage customers since 2007, says a respected business analyst. Picture: Supplied

Prior to the GFC the margin between Westpac’s home loan rate and the Reserve Bank of Australia cash rate was 1.82 per cent. It is now 3.45 per cent. CBA’s was also 1.82 per cent. It is now 3.4 per cent.

Banks’ mortgage interest gross annual profit is at record levels and estimated to have surged past $13 billion — and rising by more than $1 billion a year.

The Westpac and CBA cuts will not take effect until February 20, which is much longer than usual.

Neither gave any indication yesterday whether they will reduce rates on credit cards or business lending, despite being urged to do so by federal Treasurer Joe Hockey.

Sydney School of Business research fellow Michael Peters, who has analysed international credit card rates, said: “Australia is an expensive, overpriced market.”

For the average credit card, “Australia is 5 per cent plus more expensive than similar offerings overseas”, Mr Peters said.

Bank insiders said term-deposit rates would fall in line with the RBA’s 0.25 per cent cut. No major lender was willing to say this publicly.

Treasurer Joe Hockey has urged banks to reduce rates on credit cards and business lending following the Reserve Bank's interest rate cut. Picture: News Corp Australia

Those with term deposits are benefiting from “cross-subsidisation” from home-loan customers, said leading bank analyst Brian Johnson of Credit Lyonnais Securities Asia.

Changes to global financial regulations — known as Basel III and aimed at increasing funding stability — have created a “perverse incentive” for banks to offer relatively generous deposit rates.

The more they hold in deposits, the less reliant they are on wholesale credit markets, which can seize up during times of crisis.

The generous term-deposit rates are being paid from record earnings on mortgages.

“The profits on home loans are egregious,” Mr Johnson told News Corp Australia yesterday.

National Australia Bank remained silent again yesterday. ANZ will show its hand on Friday.

Originally published as Australian banks refuse to give mortgage holders a break, say analysts