Banks slow to pass on rate cuts, quick to lift
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 about 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 for customers, 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.
The Australian Bankers' Association chief executive, Steven Munchenberg, said the analysis only looked at 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 nation's two biggest mortgage lenders.
The finding was contained in a detailed report on mortgage trends.
Frequently Asked Questions about this Article…
Research cited in the article shows big banks have taken an average of about 10 days to pass on cuts in the cash rate to home loan customers since the 2008 global financial crisis.
Yes. The same analysis found lenders took about four days on average to pass on rate increases, which is less than half the time they typically take to implement cuts.
The figures, obtained from broker 1300HomeLoan and reported by Credit Suisse, covered all the major Australian lenders including the big four — Commonwealth Bank, Westpac, ANZ and National Australia Bank — and other brands such as Westpac-owned St George.
Commonwealth Bank was the quickest to pass on rate increases, with an average gap of about 3.7 days between an RBA move and the change taking effect for customers.
St George (owned by Westpac) was the biggest laggard in lowering rates for customers, taking around 15.5 days on average to pass on cuts.
Credit Suisse analyst Jarrod Martin said the practice helps profits but isn’t hugely significant overall — with 365 days in a year it’s not a large effect. Still, bank profits have grown strongly and industry earnings are tipped to be substantial.
The Australian Bankers’ Association noted the analysis focused on lending rates only. Banks typically announce deposit-rate moves around the same time as lending-rate changes, so delays in changing lending rates can also mean savers don’t see their rates adjust immediately.
The article cites an estimate that the practice of holding back on rate cuts made an extra roughly $2 million a day for each of Commonwealth Bank and Westpac, according to the mortgage trends report referenced.
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