Smaller lenders offer borrower satisfaction as major banks withhold part of rate cut

Westpac, Commonwealth Bank and NAB have asked for understanding following their decision not to pass on the full October 2 rate cut to borrowers.

Sympathy they are unlikely to get.

They three banks have asked borrowers to consider the higher cost of raising deposits, retirees dependent on their savings accounts and the many Australians who hold bank shares in their super funds.

However, sympathy will be in short supply with smaller lenders offering standard variable rates in some cases 100 basis points below the major banks, despite not having the multibillion-dollar pockets, enormous numbers of customers and distribution networks.

The cheapest standard variable rates: where the major banks rank


Standard variable rate

Pacific Mortgage Corp


State Custodians


Family First Credit Union



6.05% (October 12)

ING Direct

5.97%  (October 12)

Greater Building Society

6.25% (October 15)



Commonwealth Bank

6.6% (October 12)


6.71% (October 15)



Source: major banks,,

The decisions of the Commonwealth Bank (20 basis points), Westpac (18 basis points) and NAB (20 basis points) mark the 21st time the major banks have cut by less than the official RBA cash rate reduction.

Westpac subsidiary St George today said it would reduce its standard variable home loan rate by 0.17 percentage points  to 6.69% per annum (effective from October 15).

On average the major banks have passed just 115 basis points of the 150 basis points in cash rate cuts introduced by the Reserve Bank since November 2011.



All banks stuck to form when it came to the time they will take to pass on the rate cut – earning an estimated $6 million every day they withhold relief for borrowers.

Westpac remains the worst offender, taking nearly two weeks to pass on the rate cut and earning the bank an extra $20 million into its already swollen coffers.

Westpac is drifting further from the big four on variable rates, offering a standard variable rate of 6.71% from October 15.

Commonwealth Bank will take 10 days to pass on its rate cut (6.6%), with NAB’s new standard variable rate of 6.58% in effect from today, six days after the RBA announcement.

In previous statements following partial rate cuts, the major banks highlighted the growing cost of wholesale funding.

However, with wholesale funding now cheaper, the major banks focused on their rising reliance on deposits to fund their mortgage lending and the fact that savers would lose out if they passed on the full rate cut.

Westpac tried to tug at the heart strings with its statement that it needed to balance the needs of “our mortgage customers with those of our millions of savers, particularly retirees who depend on the income from their deposit accounts”.

The Commonwealth Bank told borrowers that “one significant factor” impacting its balancing of borrower, depositors and shareholder need was the “increase in the cost of deposits noted in the Reserve Bank of Australia’s most recent Financial Stability Review”.

If borrowers weren’t happy about the decision, the Commonwealth Bank tried one further tactic, reminding customers that “millions more Australians own Commonwealth Bank shares through pension funds.

NAB’s head of personal banking, Lisa Gray, steered clear of mentioning pensioners or shareholders but did highlight that “banks obtain funds for lending from deposits and from wholesale funding markets.

“Around the world, banking regulators require banks to hold more stable forms of funding, like deposits, to reduce risk in the banking sector.

"The increased competition for deposits is pushing up costs, making it more expensive to fund our lending," said Gray.

However, disgruntled borrowers who have standard variable loans dated from July 1, 2011, can switch lenders without having to pay any mortgage discharge fees (exit fees), with many smaller lenders offering substantially lower offerings.

Non-bank lender Pacific Mortgage Corporation is offering an SVR of 5.72% – 86 basis points below the lowest of the big four, NAB at 6.58%.

ING Direct, the nation’s fifth biggest lending brand, passed on the full rate cut to its borrowers with a standard variable rate of 5.97%.

Another lender, non-bank State Custodians is offering an SVR of 5.82%.

Mutual lender CUA, Australia’s largest customer-owned financial institution, said it would cut its standard variable rate by 20 basis points to 6.05% from October 12.

CUA points out that its SVR has continuously remaining over 50 basis points cheaper than the average standard variable rate offered by the big four over two years.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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