Taking time on rates worth $12m - every day
Time is money for the banks.
The big four banks save $12 million for each day they don’t pass along the Reserve Bank’s rate cut, research shows.
None of the four major banks have announced changes to their mortgage rates since the RBA lowered the cash rate by 0.5 percentage points yesterday, in order to spur the ailing domestic economy.
The Australia Institute derived the $12 million figure from the $1.1 trillion in total housing loans outstanding held by the big four according to the Australian Prudential Regulation Authority and then calculating the difference between a 50 basis point in the banks' combined revenue for one day. The Institute also assumed only 80 per cent of the mortgage market was in standard variable rates.
“The banks are engaging in a phoney debate about the cost of borrowing,’’ said senior research fellow David Richardson. He added that it was easy to see how a bank like ANZ, which posted nearly $3 billion in half-year profit today, could remain profitable while withholding mortgage rate reductions.
Consumers, politicians and activists have called on the banks to pass along the full rate cut to consumers in order for the domestic economy to benefit.
ANZ confirmed yesterday it would make no rate announcement until May 11, in keeping with the policy of updating the market on the second Friday of the month.
ANZ this morning posted a record $2.973 billion underlying cash result in the first half, rising 5 per cent.
The Australia Institute said an analysis of ANZ’s half-year figures showed that interest expenses fell 2 per cent in the six months from September to March. Over the year to March, interest expenses rose 1 per cent.
A spokesman for ANZ said profits in Australia fell 7 per cent in the half, but rose 1 per cent over the year. However, including overseas activities, ANZ's profits rose 8 per cent for the half or 10 per cent for the year.
Australian Bankers’ Association chief Steven Munchenberg referred to the RBA’s statement yesterday, which noted that funding costs are higher.
‘‘At the margin, wholesale funding costs have declined over recent months, though they remain higher, relative to benchmark rates, than in mid-2011,’’ the RBA said.
Mr Munchenberg also said the expansion of Australian banks overseas would not increase the risks borne by the Australian public because of robust regulation by APRA.
If the major banks, when they do announce rate reductions, pass on only 35 basis points of cuts instead of the full 50, Deutsche Bank calculates Westpac would save $102 million in the second half of 2012 while NAB would retain $75 million.
The same analysis showed ANZ would hold on to $58 million in the same period while CommBank stood to gain $35 million from such mortgage pricing.
The Australia Institute director Richard Denniss said bank profitability could only be attributable to the big four’s market power.
‘‘In the retail sector when people do less shopping, we expect their profits to fall,’’ he said. ‘‘In the banking system, we’re told if people are going to borrow less money off them, their profits should rise.’’
The RBA cut the cash rate to 3.75 per cent from 4.25 per cent yesterday, flagging the slowdown in the domestic sector. To date, only debt stressed Bank of Queensland has cut rates, reducing its standard variable rate by 35 basis points to 7.11 per cent.
Currently the standard variable rate at ANZ is 7.42 per cent. At Commonwealth Bank, a similar loan is 7.41 per cent. At National Australia Bank it's 7.31 per cent, while at Westpac a standard variable rate goes for 7.46 per cent, according to Canstar.