CBA credit analysts have estimated that the full monetary easing program unveiled by the RBA on Tuesday could cut funding costs for big banks by around half of the 25 basis point cut in the rate target. cash flow, which limited the extent of the impact on lending rates .
In effect, banks cannot reduce the rates paid on many deposits already close to zero and face a squeeze on their “net interest margins” – the difference between what they pay to depositors and charge to borrowers. .
The amount of deposits near zero has increased as rates have fallen: Morgan Stanley estimates that a third of Australian deposits, worth $660 billion, are at rates below 0.25%, a 60% higher than a year ago.
Normally, reductions in deposit rates would offset reductions in standard variable rates. But as RBA Governor Philip Lowe acknowledged on Tuesday, the way official rate cuts are passed on to borrowers by banks is changing, with automatic SVR cuts being replaced by customers having to look to switch to offers. less expensive.
On Tuesday, in addition to cutting the TFF rate, the RBA lowered the yield target for the Australian 3-year government bond to around 0.1%, while clarifying that the board did not l ‘intend to raise the lower cash rate. 0.1% for at least three years.
These parameters provide banks with certainty of their own funding costs over three years. This allows them to offer attractive fixed rates to customers to encourage them to refinance outside of variable rate loans, while maintaining a reasonable profit margin.
“Yesterday’s decision by the RBA will lower the interest rate structure and provide reassurance that Australians can borrow for the long term at historically low rates,” said Angus Sullivan, CBA Group Director for the bank. detail.
None of the major banks offer reduced rates to home borrowers.
In recent annual earnings briefings, banks pointed to a surge in the number of borrowers choosing fixed-rate mortgages, even ahead of Wednesday’s cuts. At the CBA, the number of new fixed rate loans rose from around 10% to over 40% as refinance rates soared. Westpac said Monday that 35% of new loans in the second half were at fixed rates.
The CBA was the first to respond to the RBA on Wednesday morning, cutting its rate on four-year fixed loans by 1 percentage point to 1.99%. That’s 0.7 percentage points less than its best standard floating rate offer of 2.69%.
Westpac quickly matched the 1.99% rate for the same fixed term. This compares to its lowest standard variable rate which is 2.19% for two years and 2.69% thereafter. NAB later said it would offer 1.98% while ANZ pegged its four-year fixed rate at 2.29%.
The CBA also cut fixed rates at two- and three-year terms on home loans by 15 basis points to 2.14% for customers of its “wealth package,” a clearing account setup used by the CBA. majority of borrowers. Westpac said its fixed rate for one-, two- and three-year terms would be 2.09% for customers on a “premium benefit package.” ANZ also set its one, two and three fixed rates at 2.09%. NAB’s two- and three-year fixed rates are 2.09%, but its one-year rate is 2.19%.
CBA, Westpac and NAB cut fixed rates and business loan rates while maintaining standard variable rates after the RBA’s second rate cut in March, while ANZ cut its SVR by 15 basis points. After the first RBA cut in March, all four cut SVRs by 25 basis points.
While global standard variable rates were not changed by any of the banks on Wednesday, average SVRs could fall over the coming months as more customers seek bespoke discounts on existing loans, after Dr. Lowe encouraged borrowers to “go ask their bank for a better deal.”
Westpac’s acting head of consumer banking, Richard Burton, has defended protecting margins by maintaining standard variable rates, given banks’ support for the economy during the pandemic crisis, which saw $179 billion repayments of interrupted loans in the sector.
“We are in extraordinary times with the official exchange rate at an all-time low and unconventional monetary policy measures in place,” he said. “It’s critical that we carefully manage interest rate changes, while continuing to do our part to support customers and the economy.”
The ABC also confirmed a lockdown moratorium on any customers unable to return to normal refunds due to the fallout from the pandemic until September 2021.
Cheaper business loans
After the RBA cuts, CBA, Westpac, NAB and ANZ also cut some business loan rates.
The ABC has cut by up to 0.51%, with rates of 2.99% for secured business loans and 3.99% for unsecured loans that use the government’s SME loan guarantee scheme, in under which the government guarantees 50% of new loans.
Westpac said SME Guarantee Program loans would be reduced by 56 basis points to 2.38% for terms of three to five years.
NAB has cut rates on its unsecured QuickBiz loan by 200 basis points for the next three months. He said the majority of his business clients had loans linked to the banknote swap rate which had fallen by around 0.90% in the past 12 months due to RBA actions, and more than 700 million dollars had already been transferred to business customers.
ANZ said its “Next Step commercial loan” rates would be cut from 0.75% to 4.24%.
The ABC also posted rates of 2.49% on new three-, four- and five-year fully-secured BetterBusiness loans, down 50 basis points. While its home loan changes only affected fixed rates, Westpac cut the variable rate on new fully secured small business loans by 29 basis points to 3.09%.
Mike Vacy Lyle, CBA Group Director for Business Banking, said: “We know our customers want certainty and the cuts we’ve announced today will help provide some certainty in the form of lower interest rates. very competitive interest for terms of three to five years”.
He added that, combined with other support measures, “we are confident that these offers will help many small businesses overcome this challenge and get back on the path to recovery and growth.”
The magnitude of the business loan rate cuts at the ABC and Westpac is twice as large as the RBA’s 25 basis point cut on Tuesday in the cost of the TFF. It is understood the banks decided to make deeper cuts after assessing speeches by Treasurer Josh Frydenberg and Dr Lowe on Tuesday afternoon, in which they made it clear they wanted the rate cuts Additional officialdom helps stimulate the economy, create new jobs and bring unemployment back towards the central bank’s full employment target.
Banks want to see downward pressure on unemployment as it helps limit defaults as borrowers walk away from government stimulus and loan deferral plans.
The CBA has also prioritized growth in corporate banking to tackle National Australia Bank, which on Thursday reported full-year earnings that analysts said will indicate continued pressure on margins due to the business environment. low rate.
Banks are also coming under pressure on earnings as low rates hit the management of what’s called a “replication portfolio” – a portfolio designed to hedge against the prospect of lower interest rates. They do this by investing in medium-term bonds, but as rates fall, the return they earn on that portfolio also declines. Morgan Stanley estimates this will hit margins of 5 basis points in the course of 2021, more than double the impact of 2 basis points on margins compared to the 15 basis point reduction in the cash rate target.