Major banks can and should cut variable rates independently of RBA: Bernie Fraser

Former RBA governor Bernie Fraser has called on the major banks to do the seemingly unthinkable and cut their variable mortgage rates outside of the RBA.

His comments come as the RBA is expected to leave the cash rate on hold today and most likely in April as well.

The major banks have passed on around 80% to 85% of RBA cash rate cuts dating back to November 2011 – increasing their interest margins on home loans and delivering record profits and dividends to shareholders.

Over the past year mortgage customers of the big four banks have received an average rate cut of 0.93 percentage points out of 1.25 percentage-point cut from the official cash rate by the RBA.

Fraser argues that the major banks have been looking after the interests of their shareholders over those of their mortgage customers, dismissing claims that the banks are balancing the interests of both groups.

'It's a question of the relative priority they attach to their shareholders and their customers. That's been the case right through the recent period when they haven't always passed on all the RBA moves,'' said Fraser in comments reported by Fairfax.

''They've had scope then, they have scope now, to [move downwards on interest rates] independently of the Reserve Bank. They've got room in terms of profitability; it's a question of their priorities, really.''

While the major banks have not reduced variable rates independently of the major banks, a number of smaller lenders have done so.

Last month, three small lenders led by Holiday Coast Credit Union cut their variable rates outside of any cash rate cut by the Reserve Bank.

Another small lender, Sydney-based non-bank BMC Mortgage Corporation was the first lender to cut its variable rates outside of an official RBA rate cut, dropping its rates by 10 basis points.

While the major banks have not cut variable rates they have cut fixed mortgage rates, which are funded off cheaper short-term debt, to offer one and two-year fixed rates at 4.99%.

Fraser is the chairman of Members Equity Bank, which offers a number fixed-rate home loans at 4.99%, and was governor of the Reserve between 1989 and 1996.

He has questioned the current level of competition in the home loan market amid the major banks earning ''very, very healthy'' profits.

Australian Bankers' Association chief executive Steven Munchenberg suggested the major banks may eventually cut variable rates independently if funding markets continued to improve.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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