NAB’s ‘good call’ on rates could bust the bank oligopoly

National Australia Bank has become the outlier of the banking industry by keeping its variable mortgage rate on hold.

NAB chief executive Andrew Thorburn said NAB was ‘listening and acting differently’. Picture: Aaron Francis

National Australia Bank has ­become the outlier of the banking industry, announcing yesterday a potentially oligopoly-busting move to keep its variable mortgage rate on hold as part of a bid to regain battered customer trust.

NAB’s decision contrasts with a recent spate of rate hikes by­ ­rivals, all of them made independently of any move on official rates by the Reserve Bank.

Chief executive Andrew Thorburn said NAB was “listening and acting differently”, and the bank understood the financial strain many of its customers were experiencing.

“It’s true that funding costs ­remain elevated for banks, ­including for NAB,” Mr Thorburn said in a letter to the bank’s customers.

“Along with the other banks, we are facing ­increased financial pressure. But so are you.”

Scott Morrison responded on Twitter that it was a “good call by NAB not to lift rates. They seem to get it.”

NAB’s move means that customers paying the 5.24 per cent variable rate will continue to make principal and interest repayments of $5987 a month on a $1 million loan over 25 years.

The rate is the lowest of the big four after Westpac blamed higher wholesale funding costs offshore for the 14-basis-point increase in its headline rate to 5.38 per cent, announced late last month.

Like all the banks, NAB has suffered a torrid time in the financial services royal commission, which has relentlessly probed the industry’s practice of charging fees, even to dead people, without providing the contracted services. ASIC launched civil proceedings last week against NAB.

 

Royal commissioner and former High Court judge Ken Hayne is due to hand down his interim report, which could be up to seven volumes long, by the end of this month.

In his note to customers yesterday, Mr Thorburn said while he couldn’t promise interest rates wouldn’t rise in the future, he could “promise we will fight every day for our customers, to show you that your loyalty matters”.

The note was interpreted to mean that NAB was not rolling out an updated version of its 2011 “break-up” campaign, where it persisted with the lowest variable rate for years to build its market share from a low ebb.

Instead, yesterday’s move was interpreted as a tactic to reward customer loyalty and rebuild trust among the bank’s one million mortgage customers.

Mr Thorburn told Sky News that banking was undergoing an “extraordinary” period in terms of the erosion of its reputation.

“Overall, in our industry over the last decade or more, we have drifted away from really building a long-term business based on our customers,” he said. “It’s a very different era now in terms of the trust that customers have, not just in our bank but in (all) banks.”

Analysts also speculated yesterday about a curtain call for the industry’s longstanding oligopoly structure, in which the banks have mostly moved their interest rates in concert, even outside policy adjustments by the RBA.

Earlier this month, the Productivity Commission lashed the banks over their treatment of existing customers in a report on competition in the financial system.

The commission found that customers were penalised for their loyalty to the tune of 0.3 to 0.4 percentage points, or up to $87 a month, on the average home loan balance.

Bank analyst Brian Johnson of broking firm CLSA said it was probably too early to call an end to the oligopoly, “but it’s clear that Australian banking’s price power on lending could yet wane”.