The Reserve Bank of Australia may cut the cash rate today – but don’t expect other banks to follow, warns ABA chief executive, Steven Münchenberg.
Münchenberg says that, while there’s often speculation regarding individual banks’ pricing decisions on loans and deposits, the ABA isn’t involved in pricing decisions. He says banks make their own choices based on a range of factors.
However, he says the ABA is frequently asked to comment on funding costs across the industry because it’s one of the factors which inevitably influence banks’ pricing decisions.
“The Reserve Bank cash rate has reduced 150 basis points since November last year, but with banks, credit unions and building societies facing real funding cost pressures, not all of that has been passed on. The Reserve Bank calculates that the major banks have cut standard variable home loan rates by an average of 115 base points.”
He says banks have passed on more of the rate cuts to small business lending backed by residential security, reducing the average loan by up to 120 basis points.
“While the Reserve Bank has identified that average funding costs have increased by 50 basis points, banks have only passed on 30-35 basis points to most home and small business owners.”
At the same time, he says, banks have only passed on roughly half the rate cuts to savers with term deposits.
“The Reserve Bank understands the cash rate is just one component of the true cost of banks’ funding and therefore does not expect banks and other lenders to exactly match every cash rate movement.”