The RBA has again defended banks' claims that they face higher funding costs and shrinking margins, with regionals the hardest hit.
Major banks have been vocal in warning consumers of possible interest rate pain to come as they increasingly distance themselves from the Reserve Bank's monthly cash rate decision. The Reserve Bank has lended creedence to this argument, saying funding costs relative to the cash rate have risen.
"Most of the increase occurred during 2008 and early 2009 when the financial crisis was at its most intense. Since the middle of 2011, however, there has been a further increase in banks’ funding costs relative to the cash rate of the order of 20–25 basis points," the RBA said in a bulletin.
The Reserve also defended bank claims of shrinking interest margins, arguing that while both lending rates and funding costs have fallen in absolute terms, they have risen relative to the cash rate.
"Lending rates have generally fallen by more than funding costs which, all else being equal, would imply that the major banks' net interest margins have contracted a little," the Bank said.
Regional banks have taken the worst blow to funding costs according to the RBA. The Reserve said regionals have experienced a larger increase in deposit costs, more significant shifts in their mix of funding and greater hits to their net interest margins.
Westpac's Kelly tips more rate pain ahead
Bank funding cost claims 'mathematically impossible'