I Am Sick of The Big Banks Not Passing The Full Rate Cut

Hotpotcorn on 02/08/2016 - 15:31

today the rba has cut the rates to a historic low of 1.5% and afterwards commbank announced that they will only cut it by 0.13%….. where is the other 0.12%???!!! what a disgrace! Can any economists here explain to me why the big banks dont usually pass the full rate cut by the RBA or is it just that they are greedy? i am seriously about to switch banks.

and also why make us wait until August 19 to come into effect, when RBA lifts you do it next day!!!! Oh wait forgot the millions your going to make in the next few weeks until you do drop it

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Comments

  • T-man on 04/08/2016 - 00:50

    I am with ING, rate is 3.92, can any broker here help me to get their current rate which is 3.79? I asked them and they refused, that rate is for new leanders only.

  • DarkOz on 04/08/2016 - 07:48

    The banks report a record profit every year. Guess where that record profit came from?

  • shiraj on 04/08/2016 - 07:58

    So, I am with CBA @ 4.05 ATM on a ~300k loan - will drop to 3.92 in 2 weeks. I am presuming ING will drop from 3.79 to however much they reduce by? Any brokers here who can help?

  • jacross on 04/08/2016 - 09:03
    +1

    Bank lending rates aren't tied to the RBA cash rate (which is an unfortunate myth that has arisen over the last 10-15 years). The banks brought it on themselves by marketing their actions solely to RBA cash rate movements when it suited them.

    In simple terms, the RBA lowers the cash rate by buying back Aus Govt bonds which pumps more money into the economy. The banks need more sources than just this marginal change though and they do that by sourcing funds from a range of financial markets, of which they have to pay a return.

    The Aus government doesn't just lend an infinite amount of money to anyone who wants it. The cash rate is merely a target rate for the overnight money market lending rate (interbank lending).

    Source: Econ grad if that's good enough (I don't call myself an economist because that's not my profession).

  • jellykingdom on 04/08/2016 - 09:27

    I'm actually glad they didn't pass on the full rate cut. The cost of living in general is at a historic low (food is cheap, goods are cheaper than ever, mobile phone plans are cheap, cars are cheap, petrol/elec/gas aren't so great though) except for housing.

    Sure it helps my mortgage but the lower they make the rate, the more the housing market is going to keep going gangbusters since loan money is so cheap to get. It is completely out of control and I think we're setting up for a big reversal. Or at the very least, a big shock when the housing market activity (not necessarily price) subsides and NSW realises "hey wait we aren't hot sh*t after all, it was all down to construction and stamp duty" - similar to WA during/after the mining boom

    I think let's take 0.12% pain now ($20 per week on a $1m loan) for long term stability

  • Trying2SaveABuck on 04/08/2016 - 10:05
    +1

    The only thing you can do is shop around and refinance. Does anyone know the fees banks normally charge to refinance a variable loan? Im looking at changing banks when i get back from overseas.

  • shaiguy on 04/08/2016 - 10:54
    +1

    OK here is answer from someone in banking industry (although do not work in home loans nor do I work for a Big 4 Australian bank). A lot of people just focus on the overnight cash rate however over the past few years there is a disconnect between the cash rates globally and banks' cost of funding. This is given a number of reasons including changes to Basel (the reading will put you to sleep) which is the major one, higher provisioning costs which is partially related to Basel but also current economic environment e.g. a lot of banks have been smashed by losing money to mining companies etc. In terms of people complaining that our banks make X amount of profit. Well if they were not and near collapsing then our economy would be in turmoil ala banks in Europe etc. Rightly or wrongly, the Australian banking sector needs to be strong as it has a flow on throughout the economy in many ways, e.g. confidence, business and consumer activity, etc.

    Article from The Australian yesterday:
    http://www.theaustralian.com.au/business/opinion/stephen-bar…

    RBA Bulletin on banking funding costs over 2015:
    http://www.rba.gov.au/publications/bulletin/2016/mar/3.html

    ANZ article talking about external factors:
    https://bluenotes.anz.com/posts/2016/04/the-moving-parts-of-…

    • Brianqpr on 04/08/2016 - 11:22
      +4

      This is all well and good, but the banks announce record profits every year while still crying poor. During the GFC funding costs did rise and the banks used attractive term deposit rates and capital raising to help with that. Those funding costs are not same same problem now and it is proved by other lenders offering significantly lower rates.

      I am a former CBA employee and know full well all the arguments the marketing people train you to use every time there is a rate cut they don't pass on or a record profit announcement. Just before every announcement they give staff refresher training on it. Many of the same lines (benefit thru superannuation blah, blah - yeah maybe 4% of your entire fund is invested in Australian banks, making 7% rather than 5% on that 4% doesn't mean you will buy a yacht at age 65) have been used in this thread.

      I got negged earlier for saying that not announcing a record profit is seen a failure, but its true. The shareholders have become accustomed to it and the bank feels it has to deliver so that this expectation is satisfied.

      The fact is they could give more back to customers (depositors and borrowers) and still make very healthy, but maybe not record, profits. What stops them is mainly greed but also the apathy of most people. That and the fact that refinancing a home loan is unnecessarily difficult. Simplify that process and watch their offers improve.

      • shaiguy on 05/08/2016 - 15:45

        The banks also have a lot more capital so record profits do not necessarily relate to a higher ROE. Just look at the banks' share prices over the last 5 years - only CBA has had a moderate increase whilst the others have become stagnant.

        The last sentence re depositors - as mentioned in the Australian, deposit rates have been increasing.

        In terms of having a Government own a bank/CBA, it's a 2 edge sword, perhaps it would push rates down (maybe not) and commonly and historically numerous government institutions have been extremely inefficient - i.e. not an appropriate use of taxpayer funds.

        I think one thing also missing here is that banks are not obliged to pass on rate cuts. It is not like a pass-through/rebate agreement. E.g. should you also get corresponding discounts from your landlord, mobile phone provider, airfares, hotels, etc. because their interest costs are lower? swap "interest" for any other cost.

        In saying that, I do think there is a massive opportunity in the future for fintechs to potentially compete, particularly using positive reporting as an opportunity to break existing structures/mindsets. Also if there was a product which guaranteed to put on rate cuts then this could do quite well (but they would need to be very careful in managing their cost side of the business).

  • mohan76 on 04/08/2016 - 11:31

    We don't have any State own banks left , now we are paying the price. govt can't influence open market without having it's own retail and wholesale infrastructure.

  • BestofOZB on 04/08/2016 - 12:02

    Banks that passed the full rate cut so far:

    Bank Australia.
    Bank of Sydney.
    P&N Bank.

    Hopefully more to follow.

    Time to shop.

    • BestofOZB on 06/08/2016 - 10:12

      Homestar Finance.
      Reduce Home Loans.
      Virgin Money.

  • leznix on 04/08/2016 - 12:52
    +2

    I pulled out my funds/loans/etc from the big 4 recently, totally disgusted with them.

    • Trying2SaveABuck on 04/08/2016 - 13:58

      this is the right attitude, you we wanted to buy a car you would shop around if one guy was selling a new car for 20k and other was sell it for 15k you would obviously go the cheaper option. People dont do this with banks because of the 'hassle' however you consistently need to evaluate if you can get a better deal im currently with bankwest and im horrified they only passed 0.01 and on the last cut only passed 0.02 im looking at refinancing because simply put i can get the same thing somewhere else cheaper.

  • chubbychicken on 04/08/2016 - 15:57

    Here I thought life was about more then money? Clearly the big 4 banks don't think so… Not sure if I have ever heard anything more patronising from a bank!

  • kywst on 04/08/2016 - 17:32

    The recent APRA study indicated that the major banks' aggregate ratio was about 4½ per cent at June 2014, well above the draft 3 per cent international leverage ratio requirement.

    Effectively the banks get to turn $4.5 into $100 every time someone takes out a loan. The money is born of immaculate conception but the interest you need to pay is very real. Should've joined the racket years ago.

  • No on 04/08/2016 - 18:39

    Hey all, does anyone know if Bankwest will negotiate on the rate to keep an existing customer? After the cut I will be on 4.05%. Ubank is 3.74% and they haven't reduced the rate yet. I was with ubank prior to Bankwest and would be happy to go back to them.

    • herbo on 05/08/2016 - 09:49

      I'm with Bankwest. Assuming the cut is 0.13% I'll then be on 4.09% so you're doing slightly better. Re their willingness to negotiate - I sent them a message through internet banking and then phoned them (maybe 6 months ago) and threatened to leave for a better rate. I was on 4.62% and as a result of that they dropped it to 4.22%. It's worth a try, if you have any luck please post here again.

      • No on 05/08/2016 - 09:51

        Thanks, I will wait until ubank announce what they are doing and give them a call. By the way BankWest have said the cut will be 0.10.

        https://t.co/jDssk6Xlra

  • Serpeant on 04/08/2016 - 22:18

    1. Banks are there to make profits (as greedy as they are).

    2. If you want to blame anyone, blame the Government. Turnball's pathetic dig at the banks to get them to pass on the full rate cut was to save his face. As if the Australian Government has any influence on how much the rate cut is passed on.

    3. The one way the Australian Government had influence on rates was sold in 1991 with the sale of the CBA.

    4. As a poster above already mentioned, this is the system we have. The government/corporates love it because we are forced to work our 40 hour week, making corporates super rich.

  • gringo on 04/08/2016 - 22:55
    +1

    They should encourage competition by setting up a "Bank of Australia" that provides guaranteed access to credit products within a sensible margin of the cash rate to backstop gouging. Could be a nice little earner for the govt. Also, punitive margin credit cards would disappear overnight.

    Alternately, if the govt. wants to give money to people so they spend - just do it. Silly pretending that it isn't welfare for corporations and borrowers at the expense of everyone else.

    • Serpeant on 04/08/2016 - 22:57
      +3

      What sickens me was Turnball pretending to care and telling the banks off for not passing the full rate cut. As if this even had the slightest of affect on the banks (and Turnball knew it would do nothing too)…

      As I said earliar, we had a "Bank of Australia". This was the Commonwealth Bank that was sold of in 1991 by our short-thinking and corrupt Governments.

      • gringo on 04/08/2016 - 22:58
        +2

        No reason why they can't do it again.. when competition fails, introduce some.

        • Serpeant on 04/08/2016 - 23:00
          +1

          Why would the Government do this?

          1. They are in cohorts with the banks and other big corporates. Actually this is wrong. The big corporates control the Government. Why would the banks let the Government do this?

          2. The Government loves the fact that we have massive mortgages. We are forced to work a 40 hour week and pay our taxes.

          3. Why do you think the Government intentionally fueled the housing boom and are continuing too?

        • gringo on 04/08/2016 - 23:07
          +1

          @Serpeant:

          1. They wouldn't have to destroy the banks - just set up their own institution that earns 10% returns instead of the 16% the big banks currently enjoy. Given interest rates are going negative I think this is more than fair. It could use profits from the bank to fund infrastructure or the health system.

          2. Well I think state governments love the land tax revenue yeah. This wouldn't push house prices down though.

        • Brianqpr on 05/08/2016 - 10:16

          Spot on. Not forgetting the banks provided a lot of funding to try and ensure the coalition was re-elected to avoid a royal commission.

          While this just about worked, it didn't quite go to plan in that the government now has a very skinny majority and a difficult senate to deal with. By behaving the way they are with this latest rate cut, they are actually increasing the likelihood that a royal commission will take place. Why else would Mr Turnbull, a well known friend of the finance industry, be making noises about their failure to pass on the full cut?

          While we are on the subject of banks gouging customers, how long before the ridiculous $2 ATM fees are scrapped. haven't existed in the UK for many years.

        • Brianqpr on 05/08/2016 - 10:21

          Look at the supermarkets, running scared now because of the success of Aldi and possibly others entering our market after years of having everything on their own terms.

          Real competition is the only thing that works, otherwise human nature to be greedy takes over.

        • tomclancy on 05/08/2016 - 10:34

          @Brianqpr:

          Look at the supermarkets, running scared now because of the success of Aldi and possibly others entering our market after years of having everything on their own terms.

          I used to work in a large retail property company (owned 160+ supermarket sites) and Coles/Woolworths love when an Aldi opens nearby - their sales at that store go through the roof. Complementary shopping.

          Coles & Woolworths don't give two hoots about Aldi, Costco, Lidl or others - they really only care about stealing market share of their main competitor and having an Aldi near them helps the cause. Anyone who thinks Coles/Woolworths are "running scared" have a lack of understanding of their business model.

        • Brianqpr on 05/08/2016 - 10:41

          Really? That's why Woolworths shares are falling and both they and Coles are reducing prices. Bread, milk etc cheaper than 5 years ago. Aldi are stepping up and expanding having completed their initial strategy to get established here and moving more into areas (fresh fruit etc) the big two have normally dominated. The idea that they don't give "two hoots" about the likes of Aldi is laughable. Might have been true 5 years ago,not now.

          I would liken Aldi's strategy to Hyundai or Kia. Come in with cheap products to get a presence in the country and the brand known. Then improve on range and quality to the point where it competes with the best while retaining a reputation for great value. Perhaps Holden and Ford didn't give "two hoots" about them?

          The UK has a much more mature supermarket sector with plenty of competition and therefore lower prices. That's where we are headed now and not before time.

        • tomclancy on 05/08/2016 - 11:12

          @Brianqpr: Do you think Woolworths shares are falling because of Aldi??? Now that is laughable.

          Coles & Woolworths reduce the price of bread & milk to compete with each other. If they were truly competing with Aldi then they would have to reduce their prices even further, not just to the same price as the other major.

        • Brianqpr on 05/08/2016 - 11:18

          So do you think Woolworths and Coles prices would have fallen in the same way if Aldi didn't exist in Australia?

        • tomclancy on 05/08/2016 - 11:23

          @Brianqpr: [sigh] Aldi opened in Australia in 2001. Coles & Woolworths both dropped their price of roast chickens to $8.00/$7.90 respectively last month. Yes I think you are right, Aldi forced their hand.

        • tomclancy on 05/08/2016 - 11:39
          -2

          @Brianqpr: Well done on finding an article that completely misses the point. Any other brick walls to bash my head against 'round here?

        • Brianqpr on 05/08/2016 - 12:43

          @PBG: Not really sure how it misses the point. Discusses industry margins being driven lower as a result of Aldi's presence and expansion in Australia as well as how this is likely to increase in the future.

    • samojed on 05/08/2016 - 07:23
      -1

      whenever an idea like this appears, someone screams: "that's socialist!" and the sheep go "oh no, we don't want socialism, we are all going to die in work camps"

      • Brianqpr on 05/08/2016 - 10:18
        +1

        Yeah because capitalism is such a raging success isn't it? A complete house of cards, the only question is when.

  • naritas on 05/08/2016 - 12:44

    For anyone interested in the Australian Bankers' Association response to the Federal Government's invitation for banks to brief a parliamentary committee on interest rate decisions, it can be found here.

    PS We're not endorsing their response, rather we thought this to be good material for people to debate considering the Australian Bankers' Association is a mouthpiece for the banks on topics such as the one in this thread.

  • Cwong14u on 05/08/2016 - 14:47

    https://www.finder.com.au/home-loan-interest-rate-cuts-rba-a…

    Website that tracks how many bps the lenders pass on…

  • Brianqpr on 05/08/2016 - 15:37

    Ok all, Reduce Home Loans seem to have passed on the full cut. Comparison rate 3.39% with no offset or 3.44% with. Must have 80% LVR and max loan is $750k. I have a fixed loan ending soon and this is where I will be heading. Can't find a better deal anywhere.

  • StopThatBus on 05/08/2016 - 20:47
    +1

    Liberal Voters. Keeping the greed rolling on.

  • psylence on 06/08/2016 - 09:57

    I have no idea why people are still getting loans from the big 4, my investment properties and owner occupied are all through loans.com.au and ubank, why pay more

  • frostman on 06/08/2016 - 19:01

    The interest rate cuts aren't the real issue, the real issue is the property prices

    What good is having a mortgage rate of 3% when the cheapest (dump) house you can afford is 900,000 to 1.2 million?

    Your real issue is the inflated property prices, at a minimum every property in Sydney (I speak of Syd as I live here) is at least 35% over-priced.

    Root cause?

    1.) Government capital gains tax on investment property is low and allows rich people to buy multiple properties with minimal restrictions
    2.) Explosive overseas Asian foreign investment meant 99% of the chance an apartment is sold off the plan prior materialising.

  • JeffT90 on 06/08/2016 - 19:44

    Just some facts:
    *RBA cash rate is not the rate at which banks raise funds. That is the deposit rates and other sources of funding
    *These costs of funding have increased since demand for bank paper has been reduced by post GFC regulation, eg LIBOR etc.
    *Banks don't borrow overseas because it's cheaper. Australia doesn't have sufficient domestic savings to fund all mortgages, unlike net savers like Japan, etc

    Just read in the Economist. Obviously don't know enough about the inner workings wtc

  • Xastros on 07/08/2016 - 00:43
    +2

    Disclaimer: I work at a bank but am not in a high level job nor do I own many shares in the banks.

    Explanation:

    1. The banks don't get to borrow at the RBA cash rate of 1.50%. They have a mix of funding sources including raising money from investors/overseas funding/deposits from customers. As an example Westpac recently raised money from public Australian Investors at nearly 7%. I.e. in return for investors providing Westpac money (which it then uses to lend to customers) it pays investors nearly 7% interest. Your home loan (if owner occupied) from Westpac is probably charging you a rate under 5%. Why does Westpac not charge you 7%? Because that funding forms only a small portion of it's overall book. For example some of it's funds are from customer term deposits which pay between 2.5% to 3%. However, overall every time the bank raises new capital from the markets it is very very expensive and in fact more expensive than the bank charges you for your home loan. In short, funding costs are going up sharply. Old cheap funding needs to be refinanced at the current market rates which are very high. So when the RBA drops the cash rate the banks' funding cost is not dropped by the same amount. In fact the banks' funding costs are going up even with no change to the RBA rate. They just use the RBA rate adjusments to claw back some of that cost.

    2. Worldwide banking regulations are requiring banks to hold more reserve money to ensure the safety of the banks (in the wake of the GFC in 2008). Banks have to hold a certain amount of money in reserve for every dollar it lends out. That reserve amount as a percentage is going up to make banks safer. This reserve money costs the bank money. It has to borrow that money from investors or it has to pay depositors interest and it can't lend out that money to make up for it. This also raises the overall cost of the money the banks lend to you.

    3. The management of the bank's primary responsibility is to it's shareholders (owners) and not the customers. It is actually their job to make as much money as humanly possible for their shareholders. Their job is not to give customers the cheapest loan possible although competition is making them do that. You wouldn't go into a restaurant and say "hey the cost of beef has gone down I demand you charge less for your steaks". Why should you expect the bank to charge what you want for your loans. Just remember the bank is there to make as much money as possible and not for any other reason. However, believe me working in the bank it is very competitive right now and returns are getting smaller. They are cutting costs everywhere including staff to make up for it and yes if they can squeeze more out of customers they will do that and there is nothing wrong with that inherently. No one is forcing you to take a loan out. If you don't like the price of coffee at the local cafe you can choose not to drink coffee from there. If you are unhappy with the cost of coffee everywhere you can choose not to drink any coffee. If you choose to get a loan, you must think it is worth it to be able to buy your home or investment property. In this case you have to pay the price set by the seller and accept you have no control over it. I have a home loan too so I know how you feel but this is the sad truth. Having said all that, IMO the banks are actually not trying to rip you off but they are trying to maintain their margins in a world where the cost of their money (that they lend to you) is going up.

    4. Why do they not pass on the rate cut immediately? Why 2 weeks? I can't speak for the banks but I'm pretty sure it's so they can make more money.

  • marcnunes on 07/08/2016 - 01:23

    Banks make billions in profits thanks to Australians.
    I am concerned with the property market still going up and I would not like to see a medium house in Melbourne for 1 million.
    However if home owners need cash to spend in the economy, how dare the banks think they can cash up this money?
    I decided not just to leave ING on my own. I decided and I will leave and bring some colleagues/friends with me.
    If you are a customer from the BIG4, please don't even look at me. To me, you are lazy and you are contributing to keep these banks dictating the rules.

  • freemoneyhunter on 07/08/2016 - 06:07

    Hopefully sometime in the future if the RBA ever rises interest rates, I'll open a thread complaining that the banks didn't pass the full rate increase to my deposit account.

  • ozshaz on 08/08/2016 - 08:09

    Ubank just passed on 0.10% cut to their 3.74% rate.

    • Been on 08/08/2016 - 11:20

      Hi,

      Does that mean the new rate is 3.64%? It's not that clear to me…

      • ozshaz on 08/08/2016 - 11:51

        yes that's what I understand from their website. New rate applicable from 19th August ,

        We are extending our Value Offer which means we can continue to offer our Owner Occupier P&I customers a 0.43% discount from our SVR maintaining our competitive headline rate of 3.74% (OO P&I). As a result of the RBA movement, we are reducing all our home loan SVRs by 0.10% effective 19 Aug.

        • Been on 08/08/2016 - 17:10

          Ya I thought so too. But the Mozo website has Ubank reducing their headline rate from 4.07% to 3.97%.

          If you then apply the Ubank discount of 0.43%, you get 3.54%…

          Odd

          https://mozo.com.au/reserve-bank-interest-rates

        • ozshaz on 08/08/2016 - 17:39

          @Been: i think after reduction its 4.07. Here is the info from ubank website

          This will bring UBank's standard variable rate down to 4.07% p. a for Owner Occupier (OO) and Principle & Interest (P&I), which will be available to home loan customers from August 19.

        • Been on 08/08/2016 - 20:24

          @ozshaz:

          Excellent thanks, should result in an all in rate of 3.64% for OO, P&I properties.

          Been

    • bluesky on 08/08/2016 - 15:25

      Ubank pass on 0.10% cut for home loans, yet reduce usaver account rates by the full 0.25% (3.12 to 2.87%).

  • CheapskateQueen on 09/08/2016 - 14:13

    meanwhile it's been a week and loans.com.au still hasn't announced their cut =/ hopefully theyre calculating that they can give us the full .25

  • chyawala on 09/08/2016 - 21:15

    Lets see, if next time there's an increase by 0.25% that they only raise it 0.13% as they already have their 0.12% from this time.

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