Australia's major banks are to pass only some of the Reserve Bank's 25 basis point cut to the official cash rate earlier this week.
Their excuse for not passing on all of it?...Rising costs, mainly relating to deposits, which are impacting overall funding costs.
The way in which banks fund mortgages is quite complex, but generally speaking, the cost of funds are determined by a mix of deposits along with long term and short term wholesale funds.
While deposits form the greater proportion of the mix, wholesale funds normally cost more.
ANZ was first to take the initiative to email journalists a chart explaining how these costs are derived.
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The last time it did this was back in April, when it lifted its standard variable rate by 0.06% despite the RBA's decision to keep rates steady.
It didn't include the chart in subsequent decisions, when it moved rates lower, but less than the RBA.
It's also interesting to note that only yesterday, ANZ boss Philip Chronican revealed in a presentation called 'Banking on Australia' that the bank has increased market share, and more importantly, that its net interest margin has recovered slightly.
Household lending, and deposits are also growing. For a while, banks complained that their margins were under pressure, also influencing their interest rate decisions.
So the real question is: Has this pressure been lifted somewhat, and if so, how much can be passed onto the consumer?
What we do know, is that ANZ's policy is to announce its decision on interest rates on the second Friday of every month.
That means that ANZ customers won't know to what extent they'll benefit from an interest rate cut until next week.
The longer it takes to make that decision, the more money the bank makes for its shareholders.
For customers of the other three major banks, this is the state of play; NAB is reducing its standard variable rate from October 8th by 0.2% to 6.58%.
The Commonwealth Bank is cutting its standard variable rate from October 12th by 0.2% to 6.60%.
Westpac is decreasing its standard variable rate from October 15th by 0.18% to 6.71%. ANZ's standard variable rate currently stands at 6.80%.
As of Friday afternoon, only two of the smaller lenders have confirmed they'll pass on the full 0.25% RBA official interest rate cut and they are ING Direct and Yellow Brick Road.
Mark Bouris, Executive Chairman of Yellow Brick Road took the liberty of tweeting, “Decided to pass on the full 25bps this afternoon ! Our customers deserve it and I can afford it . So to my bank competitors bring it on ...
” And while we're on the subject of twitter, Treasurer Wayne Swan offered this piece of advice on the social media platform, “NAB and CBA customers will be disappointed with a 20 pt cut. If you're not happy with your lender, then have a look around for better value.”
The RBA next meets on Melbourne Cup day.
