Commonwealth Bank, NAB and Westpac hold back on RBA’s full interest rate cut

CBA, NAB and Westpac have snubbed calls and stopped short of passing on the July rate cut in full.

Three of the big four banks have witheld part of the RBA’s July interest rate cut. Picture: AAP

Commonwealth Bank, NAB and Westpac have stopped short of passing on the Reserve Bank of Australia’s full interest rate cut, citing the need to balance the interests of borrowers and savers.

On Tuesday NAB and CBA announced that they would reduce mortgage rates by 0.19 per cent, rather than the 0.25 per cent, or 25 basis points, cut made by the RBA to the official cash rate.

In June, both CBA and NAB passed on the RBA’s entire interest rate cut, while rivals ANZ and Westpac copped criticism for not passing the reduction on in full.

The nation's largest lender, CBA, said rates on its owner occupied loans, which pay down principal and interest, would fall by 0.19 per cent per annum to a new record low rate of 4.93 per cent. Investor loans that pay principal and interest will decline by the same amount, while CBA’s interest-only loans for owner occupiers and investors will get the full reduction and fall by 0.25 per cent, the bank’s statement said.

“With official interest rate settings already at record lows, we are focused on balancing the benefits and the costs of further interest rate reductions between our 1.6 million home loan and over 6 million savings customers,” said Angus Sullivan, CBA’s executive for retail banking services said:

“We have carefully considered how to respond to this latest official interest rate cut, given that it is not possible to pass on the full rate reduction to over $160 billion of our deposits, including deposits where interest rates are at or already near zero.”

Mr Sullivan added that CBA made a “deliberate choice” to limit the interest rate reduction to 0.15 per cent on popular savings account, NetBank Saver.

Using very similar language, NAB chief customer officer, consumer banking, Mike Baird said that “in making this decision, we have also considered our customers who rely on income from deposits, including farmers and growing numbers of retirees, as well as those wanting to build their savings.”

“For any changes to interest rates on savings accounts following today’s RBA cash rate announcement, NAB will not decrease rates by more than 19 basis points.

“Decisions like these are difficult and reflect the current unique circumstances, with home loan rates at record lows at the same time as deposit and savings rates also being at record lows,” he said.

The decision comes ahead of CBA chief executive Matt Comyn heading to Canberra tomorrow as part of the launch of the industry’s new code of conduct.

Commonwealth Bank's decision came after the RBA made the widely-expected move to cut the official cash rate to a new record low of 1 per cent. The July meeting cut marked the first time the RBA had made back-to-back cuts since 2012.

Ahead of Tuesday’s rates decision, Treasurer Josh Frydenberg issued a message to financial institutions: “We do expect the banks to pass on in full to the Australian people the benefits of sustained reductions in their funding costs,” he said.

In the statement accompanying the RBA decision, governor Dr Philip Lowe also made an apparent call on the banking sector to pass on the savings to borrowers, noting that “bank funding costs in Australia have also declined” and that “money market spreads” had “fully reverse the increases that took place last year”.

To soften the blow, CBA said it would start offering a special five-month term deposit rate introduced at 2.20 per cent per annum.

Rival ANZ was first among the major banks to cut interest rates, this time deciding to pass on the full Reserve Bank of Australia reduction to borrowers.

ANZ said variable interest home loan rates in Australia would fall by 25 basis points, after the cash rate fell for a second straight month to a new low of 1 per cent.

ANZ executive for retail and commercial banking Mark Hand said: “We have decided we will reduce variable interest rates for our home loan customers by 0.25 per cent per annum. Importantly, we will apply this reduction across all our variable rate home loans.”

Meanwhile Westpac took a different approach but still withheld part of the RBA’s reduction. For most home loans, the bank will reduce interest rates by 20 basis points, but for vvariable residential investment property loans, the rate will be reduced by 30 basis points, exceeding the RBA’s cut.

Striking a similar tone to CBA and NBA Westpac chief executive, consumer David Lindberg said the decision “reflects the pressures of the declining cash rate in an historically low interest rate environment.

“Today’s announcement means our Standard Variable Rate (SVR) will be the lowest it has been in more than 45 years for owner occupier home loan customers with principal and interest repayments,” he said.

Earlier non-bank lender Resimac beat the big banks to any rate cut announcements in the wake of the RBA’s decision to cut the official cash rate to 1 per cent.

Resimac said on Tuesday it would reduce variable rates on its prime and specialist mortgages by 25 basis points. Resimac’s interest rate reduction will take effect on July 24.

Investors are closely watching the big four to see how they respond to the Reserve Bank’s decision to cut the cash rate.

Interest rate cuts weigh on bank profitability as they need to reprice mortgages, along with deposits.

Bank shares dragged the ASX lower in the wake of the RBA’s decision on Tuesday.