Westpac delays passing on rate cut Banking Lender poised to net $2 million a day
While the big banks have all announced they will pass on the latest rate cut to borrowers, and ANZ will pass on a slightly larger amount, mortgage customers of the majors do not start paying less interest until the cuts take actually effect.
In a move that is estimated to make the biggest banks an extra $2 million a day, lenders generally drag their feet in applying interest rate cuts to mortgage accounts, often taking a week or more.
The Commonwealth Bank and National Australia Bank have been the quickest of the majors to pass on the latest cut. Both will pass on the 0.25 percentage point cut to borrowers, with the reductions taking effect on Monday.
ANZ customers, who are receiving a 0.27 percentage point cut, will start paying less interest on Friday.
Westpac's cut, also of 0.25 percentage points, will not take effect until next Monday, almost two weeks after the bank announced its decision. With a mortgage book of about $300 billion, Westpac is likely to net roughly $2 million a day in extra income until the cut is passed through.
A spokesman for Westpac said: "Our decisions are based on providing certainty to our customers who know clearly when their monthly repayment amounts will change."
Its Bank of Melbourne customers will receive the cut slightly earlier, on Friday, while St George customers will receive the cut on Monday, May 20.
Importantly, borrowers also receive some benefit from banks' delays in passing on rate changes when rates are rising.
However, BusinessDay analysis last year found banks on average took more than 10 days to pass on reductions in the cash rate to mortgage holders, but less than seven days to pass on rate rises.
Frequently Asked Questions about this Article…
Westpac announced it will delay applying its 0.25 percentage point rate cut to mortgage accounts until the following Monday — almost two weeks after the decision. The bank says the timing is chosen to provide certainty to customers so they know exactly when their monthly repayment amounts will change.
Commonwealth Bank and National Australia Bank will pass on a 0.25 percentage point cut with reductions taking effect on Monday. ANZ will pass on a slightly larger 0.27 percentage point cut and its customers start paying less on Friday. Westpac’s 0.25 point cut takes effect next Monday, with Bank of Melbourne customers getting it on Friday and St George customers on Monday, May 20.
Analysis in the article estimates the biggest banks can net an extra roughly $2 million a day by dragging their feet in applying interest rate cuts to mortgage accounts. With a mortgage book around $300 billion, Westpac alone is likely to net about $2 million a day until it applies the cut.
Westpac’s mortgage book is reported to be about $300 billion. A large mortgage book magnifies the daily impact of timing differences in passing on rate cuts, meaning delays can translate into millions of dollars in extra net interest income for the bank while borrowers wait for reduced repayments.
Yes. The article notes borrowers can receive some benefit from banks’ delays when rates are rising, because banks historically take longer to pass on cuts than rises and shorter to pass on increases — timing can work for borrowers in different rate cycles.
BusinessDay analysis cited in the article found banks on average took more than 10 days to pass on reductions in the cash rate to mortgage holders, but less than seven days to pass on rate rises.
Commonwealth Bank and National Australia Bank announced a 0.25 percentage point cut to borrowers. ANZ announced a 0.27 percentage point cut. Westpac’s cut is also 0.25 percentage points, with its customer brands (Bank of Melbourne and St George) receiving the cut on slightly different days.
A Westpac spokesman said the bank’s decisions are based on providing certainty to customers so they know clearly when their monthly repayment amounts will change — explaining the staged timing across Westpac, Bank of Melbourne and St George customers.
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