Unhappily perhaps, banks pass on full rate cuts

Whether it was due to political pressure or a desire to protect their brands by avoiding a pre-Christmas shellacking, the major banks and their subsidiaries all passed on the full RBA rate cut last week.

At 7.35pm on Thursday, Westpac announced that it was passing on the rate cut in full, following on from the Commonwealth Bank announcement just over an hour earlier.

Bankwest came to the party at 9.15pm with St George the last of the major bank brands at 10.13am on Friday morning, setting perhaps a new benchmark for time taken to make an interest rate announcement.

The Commonwealth Bank sent out a single abrupt paragraph:

“The Commonwealth Bank announced today that it will lower its Standard Variable Home Loan Interest Rate by 0.25% per annum to 7.31% per annum, effective for new and existing customers from 19 December 2011.”

This was in contrast to lengthier announcements from the other major banks, which, while highlighting the deteriorating situation in Europe and the impact on their funding costs, said they had made the “difficult” decision to pass on the full rate cut in the interests of their customers.

The kindest words came from NAB’s Lisa Gray, who said the bank wanted to “put money back in the hands of our customers and assist with supporting the Australian economy this Christmas”.

However, ANZ boss Mike Smith was clearly not happy about the amount of political pressure being placed on the banks to pass on the rate cuts in full:

“If there is one lesson the first round of the global crisis taught us, it is that a strong banking sector and well-managed government finances are the best protection the economy can have to avoid a co-ordinated downturn,” he wrote in the Financial Review.

“We simply have to have a broader and more informed public discussion about these issues as they affect all parts of the economy, including ­banking.”

Smith’s comments follow the ANZ announcing it will no longer adjust its mortgage rates following official RBA cash rate decisions.

“Bank funding costs are now largely unrelated to movements in the Reserve Bank’s official cash rate. We have therefore taken a decision to announce future pricing changes for retail and small business variable interest rates on the second Friday of each month,” said ANZ chief executive Australia Philip Chronican. 

“This provides a measure of predictability for customers on when rate changes will occur and it provides us with the flexibility to reflect movements in funding costs across the full spectrum of funding sources – not solely in response to the Reserve Bank’s cash rate.” 

A move out of step with the RBA was flagged Alan Kohler, who said he had suggested just such an idea to the major banks. 

Writing for Business Spectator on Thursday Kohler said: “Here’s a mad suggestion for the bank managers: level with your customers. Explain how your funding costs work and then when there’s a change in the price of the 26% or so of funds that come from wholesale financial markets, change the interest rate on your loans then, rather than waiting for the first Tuesday of the month, when the RBA board meets.

“I have suggested this to each of the banks and to their lobbyists, and each of them agreed it would be a good idea. But then they shrug with a helpless smile. Banks hunt in packs, you see.” 

Kohler later tweeted following the ANZ announcement: “ANZ has taken my advice, and will set rates on 2nd Friday of each month, not just when the RBA moves.” 

Here’s a rundown of the interest rate changes announced by the banks and when they kick in: 

*applies to its Mortgage Simplifier product