Bank funding costs are at their lowest level since the GFC, raising yet more questions as to whether lenders will consider passing on any further potential interest rate cuts in full.
The significant drop in long-term funding costs coincides with Treasurer Wayne Swan’s announcement that the government will no longer be investing in residential mortgage-backed securities.
ANZ sold $1.75bn worth of five-year bonds at 85 basis points, according to News Ltd financial services editor, Eric Johnston, over benchmark swap and bank bill rates, marking the record for the cheapest five-year issue by a major bank since the GFC.
However, Australian Bankers Association spokeswoman, Heather Wellard, said the fact that funding costs have gone down isn’t necessarily cut and dry.
“Basically [the RBA’s] conclusion is wholesale funding has come down but deposits are still high,” Wellar said.
Bank executives have further argued that, regardless of decreasing short-term funding costs, the price of securing longer-term funding remains high – and on-going issues in Europe have also had an effect.
Additional relief for bank profit margins is expected to come as the three and five-year funding locked in during the depths of the GFC starts to roll off, according to Johnston.
“Even so, banks argue that the main pressure is not global money markets, but rather competition for deposits among lenders. This is expected to intensify as more spare funds are ploughed into shares.”