Westpac is raising its mortgage rates by 10 points - almost double the increase announced by ANZ earlier today.
ANZ Bank made good on its threat to lift mortgage rates independently of the Reserve Bank by nudging up the interest rate on its standard variable loan. Westpac joined in by late afternoon, raising its key interest rates by even more.
ANZ raised its standard lending rate by 6 basis points, or 0.06 percentage points, to 7.36 per cent, effective from February 17. Westpac says it will raise its rate on equivalent loans by 10 basis points to 7.46 per cent, from February 20.
GLITCHES: NAB customers locked out of accounts
While the increases are relatively modest, they are likely to prompt the remaining big four banks - NAB and Commonwealth - to follow suit. The banks' moves are also aimed at underscoring their intention to maintain profit margins in the face of anger from borrowers and politicians alike.
Dollar falls on move
ANZ shares hardly reacted to the expected move and closed down 0.9 per cent at $21.42. However, the local dollar's slide accelerated on the news, pulling it down to $US1.0716, as investor bet the next move by the Reserve Bank would be a rate cut.
"It's clear than bank funding costs have risen and if more do pass on those costs to customers in a broad-based way that will tend to tighten financial conditions in the economy," HSBC chief economist Paul Bloxham said. "If the RBA then judges that conditions are tightening too much it will respond by cutting the cash rate."
Investors duly reacted by narrowing the odds of an easing in coming months. Interbank futures imply around a 54 per cent chance of a cut in March and are now fully priced for a move to 4 per cent by April.
The Reserve Bank earlier this week surprised pundits by leaving its key cash rate unchanged at 4.25 per cent. A rate cut of the typical size of 25 basis points would have given the ANZ and other banks cover to pass on a smaller rate reduction. Since the RBA didn't move, the ANZ's solo action - until Westpac join in - was even more conspicuous.
Puiblic backlash expected
ANZ's chief executive officer Australia Philip Chronican acknowledged the likely public backlash over ANZ's decision to decide on rates separately from the RBA, but said the bank needed to increase rates for the general well-being of the economy.
"There has been much debate on banks in recent days," he said. "While we recognise our decision may leave some people frustrated and even angry, we believe Australia needs safe, well-run commercial banks that aren't a burden on taxpayers and that can continue to lend."
Federal Treasurer Wayne Swan immediately attacked ANZ's decsion and reminded customers they could find a better deal.
''I think ANZ customers will be absolutely ropable with the ANZ,'' Mr Swan said this afternoon. ''The fact is that the major banks in this country are very profitable. Their net interest margins are back to where they were prior to the global financial crisis.
''And what I say to Australians who are observing these decisions, this one from the ANZ, is you do have the capacity to walk down the road and get a better deal.''
Westpac increase
Westpac said raising rates was "never easy" but that the 20 basis-point increase was necessary to reflect the higher cost of raising money by the banks.
It was also a reflection of the intense competition for deposits, a previously cheaper source of funding, which had risen by 30 basis points - 0.3 of a percentage point - over the past four months.
The cost of the increase to a customer with a typical $250,000 loan will be about $16 a month, Westpac said. The changes takes effect on February 20.
Small business bite
ANZ also raised its lending rate on loans to small business by 6 basis points, also effective from February 17.
Small and medium sized businesses will pay an extra $3 per fortnight on an average loan of $130,000, it said.
While lifting its variable home loan rate, though, ANZ also cut its fixed-lending rate on three-year loans by 15 basis points, or 0.15 percentage points, to 5.99 per cent.
ANZ said 85 per cent of its customers are already ahead on their repayments, meaning they will not need to pay more as a result of the rate rise.
Mr Chronican also launched a defence of the bank and the wider industry.
"This month we faced a serious dilemma in our review, balancing the rising cost of bank funding including deposit customers' interests in receiving highly competitive rates, and the expectation of borrowers that we keep lendingrates as low as possible," Mr Chronican said.
"In December and January we absorbed the additional funding costs in the hope that funding pressures would ease and that no change in lending rates would be necessary.
"However, margins in retail and business banking have now been squeezed for a number of months and we've taken the difficult decision to pass on part of the higher costs to customers while we also get on with taking action to reshape the bank for tougher times."
Profit week
ANZ is scheduled to release its quarterly market update next Friday - just as the rate increases kick in. Analysts expect ANZ's profit to come in at about $1.44 billion for the three months.
"The alternative of weak, constrained banks that we see in the United States and in Europe is a recipe for stagnation and recession in Australia," Mr Chronican said.
NAB reported this week its quarterly cash profit rose 7.7 per cent from a year earlier to $1.4 billion. Westpac will report its quarterly market up date next Thursday with a cash profit of $1.55 billion expected by the market.
Commonwealth Bank will report its first-half results on Wednesday with analysts tipping a record profit of about $3.4 billion.
The big four banks generated about $24.3 billion in profit last business year, helping them earn top ratings by credit agencies and placing them in the top ranks of banks worldwide.
The ANZ standard variable rate of 7.36 per cent and Westpc's 7.46 per cent compares with National Australia Bank, which currently has the lowest SVR of the big four banks at 7.22 per cent. Commonwealth's SVR sits 7.31 per cent.
Business Day with agencies
.gif)
