Banks fail to fully pass on rate cuts

Four large lenders have matched the Commonwealth Bank of in passing on less than
half of Tuesday's official cut to interest rates.
The move comes after the banking industry was criticised heavily by the federal
government for not passing on in full the interest rate cut by the Reserve Bank of
Australia (RBA).
ANZ Banking Group, Westpac, St George Bank and Suncorp Metway Ltd announced they
would shave 10 basis points from their standard mortgage rates after the RBA cut the
cash interest rate by 25 basis points - or a quarter of a percentage point- to a
49-year low of three per cent.
The five banks decided to pocket 15 basis points of the RBA's 25 basis points cut,
citing their inability to pass on a higher proportion of the rate cut because of
their rising cost of funding.
"Tight competition for customer deposits and volatile wholesale funding markets are
keeping our funding costs high," ANZ head of Australian operations Brian Hartzer
said on Wednesday.
"As market conditions allow, we will continue to pass on further reductions in
funding costs to our customers," Mr Hartzer said in a statement.
The banks' move comes after Prime Minister Kevin Rudd on Tuesday urged the banks to
reconsider their positions after Commonwealth Bank stood alone as the only bank to
cut its mortgage rates - albeit only partially by 10 basis points - following the
RBA's rate cut decision.
"This decision is disappointing and I would urge them to reconsider," Mr Rudd told
ABC TV.
National Australia Bank (NAB) now stands alone as the only major bank not to pass on
any portion of the rate cut after it said higher funding costs blocked its ability
to do so.
NAB personal banking head Lisa Gray pointed to a blowout in term funding costs and
said the bank had passed on a 387 basis point cut to its customers during the RBA's
series of cuts, now amounting to 425 basis points since September last year.
Westpac and St George have dropped their interest rates for business lending by the
full 25 basis points, while ANZ has its interest rates for other lending categories
under review.
Westpac group head of retail and business banking Peter Hanlon said it was the right
time to pass on in full the latest interest rate reduction to its business customers
because many were managing in difficult economic circumstances.
Westpac has also cut 25 basis points from six credit card products, effective from
April 20.
Interest rates on standard variable mortgages offered by the four banks now stand at
5.64 per cent for Commonwealth Bank, 5.74 per cent for NAB, 5.79 per cent at St
George Bank, 5.8 per cent at Suncorp Metway, and 5.81 per cent at both Westpac and
ANZ.
CBA, St George Bank and ANZ's changes will apply from April 17, while Westpac and
Suncorp Metway's changes become effective from April 20.