Big banks fail to pass on full RBA cut

5 Oct 2012, 5:23 pm   -   Source: AAP
Three of the four major banks have failed to pass on the RBA's interest rate cut in full. (AAP)

Three of the four major banks have failed to pass on the RBA's interest rate cut in full. (AAP)

Three of the four major banks have cut their standard variable interest rates but held back on passing on the RBA's full reduction.

Westpac, the Commonwealth Bank and National Australia Bank have cut their variable home loan rates but failed to match that of the Reserve Bank, citing the high costs of deposits.

The central bank cut the cash rate by 25 basis points to 3.25 per cent on Tuesday, sparking calls from politicians, interest groups and retailers for the major banks to pass on the reduction in full to mortgage customers.

NAB was the first major bank to move its interest rates, announcing early on Friday afternoon that it would cut its interest rates by 20 basis points.

Its standard variable interest rate will fall to 6.58 per cent from Monday, saving customers with a $300,000 mortgage an average $50 a month.

Rival CBA followed less than an hour later, matching NAB's cut, which will see its variable rate on home loans trimmed to 6.6 per cent on October 12.

Westpac moved next but its standard variable rate will only fall by 18 basis points to 6.71 per cent on October 15.

ANZ will review its lending rates at its regular monthly meeting on October 12.

Treasurer Wayne Swan said the banks' mortgage customers would be disappointed their lenders had decided against passing on in full the Reserve Bank's cut to the cash rate.

Earlier this week Australian Chamber of Commerce and Industry (ACCI) director of economics and industry policy Greg Evans said as the funding pressure for banks had significantly eased they no longer had a reason to hold back on rate cuts.

But Westpac, CBA and NAB all claimed that increased competition for deposits meant they were still facing significant funding pressures.

NAB's executive of personal banking Lisa Gray said while the bank was still committed to offering the lowest variable rate of the four majors, it also had an obligation to ensure Australian banks were safe and secure.

"Banks obtain funds for lending from deposits and from wholesale funding markets," she said in a statement.

"Around the world, banking regulators require banks to hold more stable forms of funding, like deposits, to reduce risk in the banking sector.

"The increased competition for deposits is pushing up costs, making it more expensive to fund our lending."

The CBA said it needed to balance the needs of its 1.8 million mortgage holders with those of its 11 million deposit holders and shareholders.

"One significant factor impacting this balancing of needs has been the increase in the cost of deposits noted in the Reserve Bank of Australia's most recent Financial Stability Review," CBA said in a statement.

"This increase, benefiting depositors, has resulted from increased competition for deposits, as Australian banks reduce their reliance on wholesale funding."

Westpac said while its headline variable rate was 6.71 per cent, it offered packaged discounts which would see most of its customers pay no more than 6.01 per cent.

Group executive retail and business banking Jason Yetton said while wholesale funding pressures had eased, the bank's overall costs, including the price of deposits, remained historically high.

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