Borrowers' anger grows as Big Four banks dither on passing on rate cut

Borrowers' anger grows as Big Four banks dither on passing on rate cut
Borrowers' anger grows as Big Four banks dither on passing on rate cut

Anyone who has been monitoring their Twitter accounts today will sense the growing anger at the Big Four banks, which have taken more than a day to decide how much of the RBA’s 25-basis-point cash rate cut to pass on to consumers.

Borrowers by now may have given up hope that the major banks will deliver real Christmas cheer.

More than 26 hours have passed since the RBA announced it would cut the cash rate to 4.25%. The last time the Big Four took this long was in April 2009, when the major banks took almost as long to announce their interest rate cuts after the RBA cut interest rates by 0.25%.

On that occasion, NAB was the one to “move” first – it decided to pass on none (that’s right, zilch) of the 25 basis points leading to the bank taking a huge media bashing.

Of course all the other banks then followed, and though they all passed on a meagre 10 basis points, that did not cop the same level of brand damage or public outrage as NAB was subjected to.

Today, as many commentators and analysts have pointed out, none of the banks wants to go first on making an announcement because a) they will set the benchmark that the others will only have to beat by a few basis points to avoid copping most of the flak and b) whoever moves first is likely to suffer the greatest brand damage, (provided the other banks beat their rate cut of course).

As I write, behind closed doors, the banks are carefully crafting the lines they are guaranteed to spin out about increased funding costs and European jitters that will accompany eventual announcements.

(None, though, are likely to try emulate Westpac’s disastrous attempt to explain it not passing on a full rate cut in December 2009 by putting together an animated video about banana smoothies and the cost of bananas.)

Even if borrowers must swallow the explanation that funding costs have gone up, it is also undoubtedly true that the major banks are looking to protect shareholder returns (and as Age columnist Michael West pointed out, protect executive pay bonuses).

And of course there is also the little matter of the vicious mortgage discounting war they have been engaged in over the past few months, which as JP Morgan banking analyst Scott Manning has pointed out recently, has reached a stage where the discounts are impacting on their bottom line – meaning the banks need to do something to increase their margins.

Their delay in making an announcement is likely to only insight more bank bashing and angry tweeting.

However, the question is: will they vote with their feet and switch lenders as Treasurer Wayne Swan has now made much easier to do?

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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