Big banks take their time in passing on interest rate cuts

Financial institutions are taking their time to pass on the latest rate cut and as a result they are raking in millions of dollars in interest charges.

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Exclusive: The big four banks are set to rake in a whopping $109 million in interest charges by taking their time to pass on the latest rate cuts.

The nation’s biggest financial institution, the Commonwealth Bank, has proven to be the worst offender of the big four making customers wait three weeks before handing over the drop.

The Reserve Bank of Australia governor Dr Philip Lowe announced a cash rate cut on Tuesday of 0.25 percentage points to just 0.5 per cent.

But banks will typically take at least a few weeks to pass on the cuts through to their customer base.

Figures from financial comparison website Mozo showed across all variable home loan types banks would reap the following in interest charges by delaying passing on the cut:

• ANZ – $12.9 million, 9 day delay. Effective March 13.

• Commonwealth Bank including Bankwest, $51.9 million, 20 day delay. Effective March 24.

• NAB: $13.6 million, 9 day delay. Effective March 13.

• Westpac: $30.8 million, 13 day delay. Effective March 17.

While NAB’s offshoot UBank is waiting a lengthy 28 days to pass on its 0.25 percentage point cut.

The Commonwealth Bank is taking nearly three weeks to pass on interest rate cuts to borrowers.

However, the big banks are yet to announce the impact of the latest rate cut to their savings account rates.

CBA’s executive general manager of home buying Jason Chan said the delay in passing on the cut was for multiple reasons.

“To ensure changes are made accurately, safely and reliably across multiple complex products and systems these changes will be effective 24 March 2020,” he said.

But Mozo spokeswoman Kirsty Lamont said some smaller lenders were able to pass on rate cuts immediately and big banks could do the same.

“The banks will argue they have processes they need to go through in order to pass through rate changes to borrowers,” she said.

“But history shows they are much quicker at passing on rate rises than passing on rate cuts.

“There’s a strong element of profiteering here.”

Home loan customers with a $300,000 30-year home loan will save about $45 in monthly repayments or $540 after the latest rate cut kicks in.

Other banks to announce rate cuts of 0.25 percentage points this week including Suncorp, ING and Macquarie Bank.

The Finance Brokers Association of Australia’s managing director Peter White said they delays were a result of greed.

“They make a huge amount of money by not having to do it straight away,” he said.

He said it should take no longer than five working days to pass on cuts.

But the Australian Banking Association’s chief executive officer Anna Bligh said “banks carefully update complex systems after every rate reduction or increase to ensure accuracy for every customer impacted”.

@sophieelsworth

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Originally published as Big banks take their time in passing on interest rate cuts