Banks quick to raise rates, but slow to cut them
Since the global financial crisis struck in 2008, banks have taken an average of 10 days to pass on cuts in the cash rate to their home loan customers, according to research published by Credit Suisse.
In contrast, lenders took four days when raising rates.
The figures, obtained from broker 1300HomeLoan, show that all the big four banks - Commonwealth Bank, Westpac, ANZ and National Australia Bank - engaged in the practice over the past five years.
Commonwealth Bank was quickest to pass on rate increases, with an average gap of 3.7 days between when the Reserve Bank raised rates and when the change took effect for customers.
Westpac-owned St George was the biggest laggard in lowering rates, taking 15.5 days.
Credit Suisse analyst Jarrod Martin said the practice was of some help to bank profits, but it did not have a substantial impact. "When there are 365 days in the year it's not going to be significant in the scheme of things," Mr Martin said.
Australian Bankers' Association chief executive Steven Munchenberg said the analysis looked at only one side of the banks' balance sheets.
"Banks typically announce changes to deposit rates around the same time as changes to lending rates, so any delay in changing lending rates also means savers are not seeing their rates changed immediately," Mr Munchenberg said.
"This also has a bearing on the implications of timing for banks' interest margins. While the Reserve Bank's cash rate is a significant influence on market rates, other influences come into play when banks set market interest rates, for example, banks' funding costs and competition from other financial service providers in the marketplace - just to name a couple."
Bank profits in the first half of this year have grown strongly despite weak demand for credit from households and business.
Total earnings in the industry are tipped to hit $27 billion this year. The practice of holding back on rate cuts has been estimated to make an extra $2 million a day for the Commonwealth Bank and Westpac, the two biggest mortgage lenders.
The finding was contained in a detailed report on mortgage trends, which found banks had increased the discounts they were offering customers on standard variable mortgage rates.
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Credit Suisse research reported that Australian big banks typically implemented Reserve Bank rate rises within about four days but took longer—around 10 days on average—to pass on cuts. Analysts say the practice can help profits to some extent, and banks also consider other factors such as their funding costs and competition when setting market interest rates.
The report found that since the 2008 global financial crisis banks took an average of four days to pass on official interest rate rises to customers, but about 10 days on average to pass on cuts. These figures were drawn from data provided by broker 1300HomeLoan and analysed by Credit Suisse.
The analysis showed the big four banks (Commonwealth Bank, Westpac, ANZ and National Australia Bank) engaged in this pattern. Commonwealth Bank was quickest to pass on rate increases, with an average gap of 3.7 days. Westpac-owned St George was the biggest laggard when lowering rates, taking about 15.5 days.
Credit Suisse analyst Jarrod Martin said the practice does help bank profits but is not likely to be substantial in the grand scheme. At the same time the article noted estimates that holding back on rate cuts added about $2 million a day for each of Commonwealth Bank and Westpac, indicating a measurable short-term benefit for the largest mortgage lenders.
Australian Bankers' Association CEO Steven Munchenberg pointed out that banks typically announce deposit rate changes around the same time as lending-rate changes. So a delay in adjusting lending rates can mean savers also don't see immediate changes to their deposit rates, which affects the timing of returns for deposit holders.
According to the article, while the Reserve Bank's cash rate is a major influence, banks also factor in their funding costs and competition from other financial service providers when setting market interest rates.
For mortgage holders, the findings suggest you might see rate rises reflected in your mortgage quickly, but you could wait longer for rate cuts to be passed on. The report also noted banks have increased the discounts they offer off standard variable mortgage rates, and the banking sector's profits have remained strong despite weak credit demand.
The findings came from research published by Credit Suisse using figures obtained from broker 1300HomeLoan. The analysis referenced trends since the 2008 global financial crisis and noted that all of the big four banks displayed the behaviour over the past five years.
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