National Australia Bank Ltd today confirmed it will pass on in full a 25 basis point rate cut if the Reserve Bank of Australia reduces the official cash rate by that amount at its September board meeting.
The pledge means NAB would reduce its standard variable interest rate by 0.25 per cent to 9.36 per cent per annum.
NAB's pledge follows intense debate this month over whether or not Australia's big banks would be willing to pass on in full a rate cut the Reserve bank now seems likely to make.
The bank's Australian chief executive Ahmed Fahour said NAB had been reviewing the cost of wholesale funding closely and, based on current short term funding costs, the bank would be in a position to pass on a reduction in interest rates to its customers.
"While we continue to see volatility in international markets and increases in the average cost of long term funding, we have experienced some short term funding relief which we are keen to pass on to our customers," he said.
"While I am pleased to make today's undertaking, our medium and long-term funding and our retail deposit base represent the greatest proportion of our funding costs and the average cost of these sources of funding continue to increase.
"The recent fall in short-term funding costs provides an opportunity to undertake to move rates in line with the RBA decision but future interest rate decisions will need to reflect an assessment of all the cost of funding factors.
"All Australian banks are reliant on offshore funding and increases in the average cost of long term funding are likely to be with us for some time.
"Therefore any consideration that the Federal Government can give to enhance the attractiveness of retail bank deposits will help reduce overall funding costs and assist in lowering mortgages rates."
Australia's other major banks have said they cannot guarantee passing on in full any rate cut by the central bank.
Two weeks ago, Westpac boss Gail Kelly said she would review the issue at the time. Westpac would have to consider funding costs, pushed higher by the credit crunch, the competitive environment and the effect on its customers before moving its rates.
"Clearly, we would love to pass through the full 25-basis points drop if that were to occur ... but we'll need to factor in all of those issues at that time," she told an investor briefing.
ANZ made similar comments the same day.
At its results last week CBA, the country's biggest mortgage lender, also refused to guarantee that it would pass any cut on to its customers.