Banks hold onto big margins

No bank appears to have announced any reduction in interest rates in other lending categories such as personal loans, credit cards and overdrafts. Many business loans reprice in line with money market rates quarterly.

Westpac's two subsidiary brands, St George and Rams, have not announced their new home loan pricing. Aussie Home Loans, funded by ANZ but one-third owned by CBA, announced a cut of 100 basis points in its standard variable rate, and this was on top of a pre-emptive cut some weeks ago (though that largely unwound some additional margin from earlier in the year).

No other niche lender appears to have strived for publicity over their home loan pricing decisions yesterday afternoon. CBA and NAB have thus cut their standard variable home loan rates by 2.87 percentage points since the peak of the pricing cycle in August, while the RBA has cut the cash rate target by 3.0 percentage points. The two banks added more than 1.5 percentage points to the rates during the tightening cycle in 2007 and early 2008 when the RBA increased the cash rate target by 1.0 percentage points. So CBA and NAB have added 52 basis points to their home loan margins over the course of the credit crunch while ANZ and Westpac have added more than 65 basis points.

In practice, home loan rates available to borrowers still differ from advertised rates thanks to discounting, though the extent to which banks have curtailed those discounts is unclear. Finally, the RBA in the statement announcing the decision on monetary policy noted that the policy stance was now expansionary; the first time the central bank has made this clear. Given the stickiness of rates other than mortgage rates there may be doubts as to how expansionary the policy is from the point of view of business and consumer borrowers.

Source: The Sheet