NAB steers clear of trouble

NAB’s decision to keep loan rates on hold while rivals raise them is more of a delaying tactic than the start of a price war.

NAB CEO Andrew Thorburn. The bank’s rates decision is not a grab for market share but more to rebuild trust. Pic: Aaron Francis

National Australia Bank’s move to keep its standard variable mortgage rate on hold tells you two things about the state of the banking industry.

First, the financial services royal commission, which resumed this morning, has tightened scrutiny of the industry to such an extent that it’s now having an impact on day-to-day decision-making and the pricing power and profitability of the major banks.

The sector has been under pressure for years, but this takes it to a new level.

The second, equally important, point is that NAB’s decision is more of a delaying tactic than the start of a price war, or the second coming of the controversial breakup campaign in 2011.

This explains the somewhat muted share-price response.

If NAB was flagging a permanent hit to its net interest margin, the stock would have been flogged mercilessly.

It retreated, but roughly in line with its peers.

Chief executive Andrew Thorburn steered the bank away from the chaos scenario by saying the bank would “continue to regularly review its rates and assess whether current market conditions, including funding costs, continue”.

Unlike breakup, this was not a grab for market share; its intention is to rebuild trust and advocacy.

So in the short-term, NAB’s variable mortgage rate remains at 5.24 per cent compared to 5.36 per cent for ANZ Bank, 5.37 per cent for Commonwealth Bank and 5.38 per cent for Westpac.

If NAB had repriced by 15 basis points, the boost to earnings would been in the 3-4 per cent range, matching NAB’s rivals.

A six-month repricing delay means a 1.5-2 per cent increase in earnings.

The market share impact is likely to be insignificant, because mortgage heavyweights CBA and Westpac will respond by increasing their SVR discounts.

In turn, that will dilute the benefit from their recent rate hikes.

While NAB is again the industry outlier, it’s a safe bet that, unlike in 2011, it will rejoin the pack in the short to medium-term.

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