Banks can’t afford to pass on rate cuts

The Reserve bank of Australia yesterday cut official interest rates by 0.25 per cent to a 49 year low of three per cent. No major bank has announced that it would pass on the full rate cut with NAB holding back the whole 0.25 per cent from borrowers.

NAB personal banking group executive Lisa Gray says the bank has been absorbing 0.3 per cent of extra costs. “Given we expect high funding costs to be sustained … we won't be absorbing those going forward,” said Gray.

Despite regaining access to international debt markets since the introduction of the federal government's guarantee on wholesale funding, costs remain about 1.30 per cent higher than pre-financial crisis levels. NAB has passed on 3.87 per cent of the RBA's 4.25 per cent of rate cuts since last September.

Source: The Australian Financial Review