Banks feel pressure of rate cut

Commonwealth Bank (CBA), Australia's biggest mortgage lender, joined Westpac and the National Australia Bank (NAB) in cutting their standard variable rates by 0.20 per cent, just shy of the RBA's cut of 25 basis points. CBA and NAB's new rates will be effective on December 10, while Westpac's will kick in a week later.

ANZ is sticking with its tradition to announce its decision on second Friday of each month, which will be December 14.

But the banks' caution in passing on full rate cuts to mortgagors contrasts with their eagerness to slash the interest paid on savings accounts, data from financial researcher Canstar showed.

Between May and November, the average interest collected on a five-year term deposit with one of the big banks shrunk by more than 1 per cent - from 5.65 per cent to 4.60 per cent. Despite this, the average interest collected on home loans over the same period fell more conservatively, at just 0.78 per cent.

Canstar senior financial analyst Mitchell Watson said the banks were finding opportunistic ways to minimise their costs.

"The more they pass on to deposit holders and the less they pass on to home loan customers, the more they can ease their costs," he said.

Federal Treasurer Wayne Swan has written that banks do not have any justification for holding back interest rates. He said his government's reforms meant it was easier for customers to switch banks if they were unhappy.

Mr Swan also heaped praise on online bank ING Direct for passing on the RBA's cut in full while criticising the big banks for failing to do the same.

Consumer group Choice said the big four did not need to pass on the full cuts as they were the dominant players in the market.

"They've got 80 per cent of the business. The best way to change that is by ensuring that the business spread further across the market - that will create more competition. People should vote with their feet," Choice's chief executive Alan Kirkland said.

Financial products comparison company RateCity said the slower lending market for home loans meant customer attention was even more important for lenders.

At the same time, borrowers are not receiving the standard variable rate, but about .8 per cent less, RateCity's Michelle Hutchison said.

"If you call up and ask a lender to match a home loan that you saw and you tell them you are thinking about switching or if you call their bluff, the worst they could say is no. You could end up with even a 10 basis point discount without having to do any more paperwork or fees," Ms Hutchison said.

"We are seeing a lot of lenders willingly offering to renegotiate with individual borrowers to keep them as a customer."