Westpac delays passing on rate cut
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 this Monday.
NAB CEO Cameron Clyne signalled the bank may cut interest rates independently of the Reserve Bank.
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. Westpac is likely to net roughly $2 million a day 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.
Borrowers receive some benefit from banks' delays in passing on rate changes when rates are rising.
BusinessDay analysis last year found banks on average took more than 10 days to pass on cuts in the cash rate to customers, but less than seven days to pass on rate rises.
Frequently Asked Questions about this Article…
Westpac announced a 0.25 percentage point cut but is applying it later than some peers — the reduction won’t take effect until next Monday, almost two weeks after the announcement. A Westpac spokesman said the bank times changes to give customers certainty about when their monthly repayments will change.
The Commonwealth Bank and National Australia Bank were the quickest of the majors to pass on the 0.25 percentage point cut, with both banks making the reductions effective this Monday.
ANZ customers receiving a 0.27 percentage point reduction will start paying less interest on their mortgages from Friday, when the cut takes effect for them.
The article estimates lenders can make an extra $2 million a day by dragging their feet on applying rate cuts. Westpac alone is likely to net roughly $2 million a day until its cut is passed through to customers.
Yes — the big banks in the article have announced they will pass on the latest rate cut to borrowers. Timing varies by lender, and customers only start paying less once each bank’s reductions take effect.
Bank of Melbourne customers will receive their cut on Friday, while St George customers will receive their reduction on Monday, May 20, according to the article.
Lenders generally wait to apply rate cuts — often taking a week or more — to manage the timing of monthly repayments and internal processes. The article notes this delay is common and can temporarily boost banks’ net interest income.
BusinessDay analysis cited in the article found banks on average took more than 10 days to pass on cuts in the cash rate but less than seven days to pass on rate rises, meaning rises are usually passed on faster than cuts.
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