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Category: Banking / Consumer Finance / Money and Monetary Policy

Why the banks' rate cuts were more generous in May

Friday, 2 Sep 2016 12:44:05 | Stephen Letts

The big four banks only passed on about half of the RBA's rate cut in August. (AAP: Dan Peled)

What difference a few months and an election make in the banks' preparedness to pass on Reserve Bank interest rate cuts.

Back in May, during the tempestuous election campaign when demands for a bank Royal Commission were gaining traction, the RBA drove down its official cash rate by 25 basis points to 1.75 per cent,.

In response three of the big four – NAB, CBA and Westpac – followed suit with a 25-basis-point cut, while ANZ made a more modest 19-basis-point cut.

Research from the Mozo financial comparison site found that more than half of the lenders they study – 42 out of 78 – passed on the full cut in May.

Shuttle forward past the July federal election to the RBA's August 25-basis-point cut and it has been a very different story.

Mozo's Banking Roundup for August found just six of the 78 passed on a cut.

Famously, none of the big four passed the full cut on, prompting a fairly terse response from Prime Minister Malcolm Turnbull and invitation to explain their actions but, keeping with his pre-election promise, no Royal Commission.

The lenders who did find room for the full cut were Bank Australia, Bank of Sydney, Homestar, Resi and Virgin Money, while the P&N Bank cut by 26 basis points.

Mozo's product data and compliance manager Peter Marshall said it was a pretty poor effort from the banks.

"In the lead up to the election, lenders were keen to be seen to be doing the right thing, but after the election that all passed," Mr Marshall said.

Term deposit increase a cynical PR stunt: Mozo

Mr Marshall was equally unimpressed by the banks' decision to raise rates of selected term deposits, describing it as a very cynical exercise.

"They made a lot of noise about increasing term deposits, but it only affects new money," he observed.

"It was a low cost exercise to get a bit of good PR.

"The reality is it (the banks' benefit) is heavily skewed to home loans, it significantly outweighs any benefit deposit holders are going to get."

Although, speaking to The Business shortly after the last rate cut, CLSA banking analyst Brian Johnson said August's deposit rate increases were "a rare example of customers actually winning".

"When I look at it, the move up in the deposit rate is actually bigger than the clawback they've done on housing," Mr Johnson concluded.

At call deposits suffer full cut, credit card holders get no benefit

The term deposit holder's treatment is starkly different to the vast majority of customers with at-call deposits.

The survey found the majority of the banks – including the big four – cut ongoing bonus and introductory at-call rates by the full 25 basis points.

"At-call saving rates are continuing to see the full cut passed on, they are just not getting the same favourable pricing treatment term deposits are," Mr Marshall noted.

Despite the RBA move, there was very little action in the credit card market, with only a few providers tinkering at the margins with rewards and offers.

Only one provider – Bank Australia – passed on the full cut to customers.

It is also the only bank to pass on the full cut in both May and August to its credit card holders.

AustraliaPlus


 

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