Commonwealth Bank passes 13 basis point cut

Each of the big banks have held back part of the Reserve Bank’s cut as they reduced lending rates.

Banking analysts had expected the banks to reprice loans in their favour following the federal election.

Commonwealth Bank, the nation’s largest home loan lender, has passed on about half the Reserve Bank’s official cut to interest rates, stepping up the bank industry’s “repricing” efforts to offset growing margin pressures.

After the RBA’s 25 basis point cut today, CBA was the first major lender to move and vowed to pass on just 13 basis points to homeowners, effective August 19.

National Australia Bank moved second, planning to cut variable mortgage rates by just 10 basis points to 5.25 per cent, also effective August 19. Business loans will also fall by the same amount.

Meanwhile ANZ Bank has reduced residential home loan rates by 12 points and business lending rates by 10 points.

And Westpac has reduced owner-occupier home loan rates by 14 points, with variable business loan rates cut 10 basis points.

NAB chief operating officer Antony Cahill said the bank had to carefully consider customers and shareholders in the “current economic and regulatory environment”, which had been pushing funding costs higher.

From Monday, NAB will increase rates on eight-month term deposits by 85 basis points via a “blackboard special” paying 2.9 per cent per annum.

Meanwhile at CBA, the decision pushed advertised standard variable rates for owner occupier borrowers down to 5.22 per cent, while property investment customers will be paying 5.49 per cent. Business borrowers will also see their loans -- which vary based on multiple product types -- fall by the same amount.

To offset the controversial move, CBA pledged to increase one, two and three year term deposit rates for savers by as much as 55 basis points. On a $350,000 mortgage for 25 years, CBA borrowers will save $26.89 a month compared to $51.56 if the bank had passed on the RBA’s cut in full, according to Canstar.

“Given increased funding costs and capital requirements, today’s announced changes seek to balance the needs of both customers and shareholders,” said Matt Comyn, the boss of CBA’s retail bank, the group’s largest division.

Banking analysts had expected the banks to reprice loans in their favour following the federal election, which reduced the chances of a royal commission into the industry following Labor’s loss to the Coalition.

The banks are experiencing growing margins pressures from heightened lending competition at a time of slowing credit growth, plus intensifying regulations that are strengthening capital and funding requirements.

Falling official rates also hurt bank margins by eating into profits from their deposit books and equity holdings.

To offset the mounting headwinds -- including rising bad debts -- banks last year repriced mortgages on several occasions, most controversially by hiking rates out of cycle to any move by the RBA.

More recently, business loans were also ratcheted higher.

Ahead of CBA’s cut, Mozo director Kirsty Lamont predicted the big banks would hold back as much as 10 basis points of today’s cut to protect their “under threat” margins.

“However, home loan customers are unlikely to be sympathetic towards the big banks which have failed to pass on cuts in full, hiked rates out of cycle and delayed passing on rate relief to home loan customers.”

ANZ has pocketed around $30 million since May when the bank became the only big four lending to hold back six basis points of the RBA’s cut, according to Mozo.

UBS analyst Jon Mott yesterday agreed the banks would use the RBA’s rate cut as an “opportunity” to reprice their mortgage books, but questioned whether competition would whittle the benefits away.

“As has been seen after recent initiatives, this repricing is unlikely to stick,” he told clients.

“We believe customers have become increasingly educated to contact their bank or broker to ask for larger discounts following repricing. This front-book discounting is likely to offset back-book repricing.”