Westpac and NAB lift rates on investors

National Australia Bank and Westpac have hiked interest rates on more than $100bn of loans.

National Australia Bank and Westpac have hiked interest rates on more than $100 billion of loans, targeting property ­investors, as lenders move to ­offset pressure on profits.

Ahead of the Reserve Bank’s final meeting of the year today, NAB lifted variable rates for new and existing investors by 15 basis points, effective from next Monday, increasing the cost to 5.55 per cent, while owner-­occupiers will keep paying 5.25 per cent.

Westpac yesterday also raised “interest-only” rates for investors and owner-occupiers by eight basis points, citing the need to maintain “prudent lending practices”, and Suncorp wound back promotional discounts for investors.

Just weeks after a scathing parliamentary report into the major banks criticised their pricing power, NAB chief operating officer Antony Cahill said the bank had to balance the needs of customers and shareholders in an “increasingly challenging ­environment” and didn’t make the decision “lightly”.

“A low-rate environment poses considerable challenges to all lenders, and we must respond to what is happening in the ­economy and the market,” Mr Cahill said.

The rates slug on existing customers will immediately boost profits from NAB’s $100bn of ­investment loans, disproving ­expectations the big banks may shy away from controversial out-of-cycle rate hikes, amid ongoing calls for a royal commission into their conduct.

NAB also has $135bn of mortgages to owner-occupiers, ­according to the regulator’s most recent data, making it the fourth largest home loan lender by market share, just behind ANZ but well behind leaders Commonwealth Bank and Westpac.

CBA last week raised a range of fixed-rate mortgages, following similar moves by Westpac. NAB’s online subsidiary UBank also lifted variable rates by 10 basis points, while junior lender ME has raised rates for new customers by up to 15 basis points.

With fixed rates relatively unpopular, NAB’s investment rate hike marks the biggest “repricing” by the big banks since holding back half the August cash rate cut. It also follows the banks’ hiking of investor loans in the middle of last year to comply with the regulator’s growth cap on lending to landlords.

While the 10 per cent annual cap worked to slow lending, ­investors have more recently been wading back into the market. ­According to the Reserve Bank, system-wide annual ­investor credit growth bottomed at a seven-year low of 4.6 per cent in August, before rising to 5.3 per cent in October.

Amid concerns about parts of the property market, the RBA is widely expected to hold the ­official cash rate steady today at a record low 1.5 per cent, even though economists fear the ­national accounts this week may show the economy went backwards in the third quarter.

Despite the cash rate being on hold since August and greater political scrutiny, banks have ­recently been raising various home loan products to offset ­rising funding costs, slowing ­credit growth, hot competition and more onerous regulatory changes. Martin Crabb, head of research at broker Shaw and Partners, said it wasn’t surprising banks were hiking rates, claiming their funding costs were ­“soaring”.

In a report into funding costs late last month, Deutsche Bank analyst Andrew Triggs said the major banks’ credit default swap spreads — an indicator of wholesale debt costs — had increased about 22 per cent from recent lows in September.

Also, the so-called 90-day bank bill-overnight ­indexed swap spread remained at “elevated ­levels relative to the last few years”, he said.

Junior lender ME blamed increasing “swap rates” and the rising cost of funding from customer deposits when it hiked rates.

Banks are having to increase deposit holdings to meet new regulations. An additional headwind has been the falling cash rate, crimping margins as deposit rates can’t be fully repriced lower ­because of depositors’ demands.

However, Mr Triggs claimed the indicators of the big banks’ cost of debt from wholesale funding markets had been relatively stable “after some months of ­easing”. At a Reuters event in Sydney last week, ANZ chief Shayne Elliott warned mortgage rates might rise out of cycle with the RBA depending on moves in funding costs, noting the cash was only one “ingredient” in overall costs.

Mr Cahill said net interest margins for home lending remained “under pressure”, in line with the big banks’ recent profit results. Combined profits eased 2.5 per cent last year to $29.6bn. Profitability metrics — such as return on equity and net interest margins — also ­decreased. Mr Cahill said the bank took account of a range of factors when adjusting rates, including being ­required to have more stable ­funding.