Banks pass on RBA’s rate cut in full

Three of the big banks have pledged to reduce their variable home loan rates by 0.25 per cent.

National Australia Bank, Commonwealth Bank and Westpac have acted blindingly fast in passing on Tuesday’s historic Reserve Bank rate cut in full, pledging to reduce their variable home loan rates by 0.25 per cent later this month.

The Bank of Queensland will also poass on the 25 basis point cut on its home loans.

But Australia’s fourth-largest bank, ANZ, withheld some of the RBA’s easing, blaming the need to offset higher funding costs as it decided to pass on only a 0.19 per cent rate cut for its mortgage customers.

NAB was the first big bank off the block to announce its decision after the Reserve Bank of Australia moved to pass a rate cut of 0.25 per cent on Tuesday, taking the official cash rate to a new record-low of 1.75 per cent.

NAB personal banking executive Gavin Slater said the bank considered a range of factors, but balanced the needs of its customers with those of shareholders. Customers on an average mortgage of $300,000 will save around $47 a month.

“The circumstances of each decision will always vary and we must take into account factors such as competition, regulatory capital requirements and funding costs,” Mr Slater said.

Westpac consumer bank boss George Frazis said passing on the rate cut in full would be “good news for customers”.

Meanwhile, CBA retail banking executive Matt Comyn said the bank considered the impact of the current economic environment and moved to balance the needs of its customers and shareholders.

“While we note funding costs and capital requirements have tightened, we are focused on delivering value for our 1.6 million home loan customers,” he said.

The cuts will come as a surprise to many analysts, as many were expecting the major banks to either hold back any future rate cuts or reprice mortgages higher. Banks have been under pressure over the past six months as wholesale funding costs soar and intense competition between lenders saw profit margins erode. Historically, banks have often waited until their regular rate-setting meetings before announcing whether to pass on RBA cuts or not.

Explaining the withholding of some of the cut, ANZ Australia executive Fred Ohlsson said the bank was balancing the needs of its home loan customers and its depositors, as it increased the rate on its four-month Term Deposit by 1 per cent per annum to 3 per cent.

“The background is that wholesale funding costs have again been rising in recent months,” Mr Ohlsson said. “While we’ve absorbed this for some time and taken steps to reduce costs in our own business, higher funding costs mean we are only in a position to pass on a portion of the reduction in the cash rate to our customers.”

The other banks’ decision to follow the RBA also tracks against recent repricing measures the banks have taken which have seen loan rates edge higher. Australian lenders across the board increased rates on loans in November last year, following an out-of-cycle lift for investor loans in August.

More recently, the big four banks all increased business lending rates, while Westpac also quietly ended increased term deposit rates that were implemented when it led the industry’s out-of-cycle mortgage rate rises last October.

In March, the RBA said the profit margins on the big four bank’s home loans had already reached a record high -- increasing by around 20 basis points over the year.

NAB’s rate cut will reduce its variable home loan to 5.35 per cent per annum from 5.6 per cent on May 16, while investors will have variable rates reduced to 5.5 per cent from 5.75.

Commonwealth Bank’s decision to pass on the full cut will see its standard variable home loan rate fall to 5.35 per cent from May 20.

Westpac’s rate cuts, which will be effective from May 23, will see their headline owner-occupier loans fall to 5.43 per cent and investor loans slide to 5.7 per cent.

Business borrowers at both banks will also see a cut of 0.25 per cent.