Recent discounts on standard variable rates are finally leading to profitability for banks, according to an RBS report.
It shows ANZ
’s lowering of mortgage discounts in the last six months has yielded a return on equity of 20% to 30%.
Most lenders are offering further discounts on advertised standard variable rates to those seeking bigger loans.
In September last year, ANZ
offered a 0.90 percentage point off their standard variable rate, while NAB
offered a 0.75 percentage point reduction.
The report found most banks are now offering a reduced level of discount to boost profitability, at an average of 0.7% across their variable loan offerings.
It’s a “sign of light” for the mortgage industry, and shows banks “clawing back margins on loans lost to higher funding costs,” said RBS analyst Andrew Lyons.
“Mortgage profitability has been progressively increasing, characterised by out-of-cycle rate rises and a reduction in front book discounts,” he said.
The profitability was contributed to by most banks’ refusal to pass on all of the RBA
interest rate cuts this year.