Industry super fund-owned bank ME announced it will increase interest rates by 20 basis points across its variable home loan portfolio.
Effective 20 November 2015, the non-major’s Flexible Home Loan variable interest rate will increase to 5.08% (comparison rate 5.09%). However, according to ME, its rate is still 0.48%-0.60% lower than the major banks.
ME also announced it has increased its headline Online Savings Account variable interest rate by 45 basis points, to 3.55%, effective Wednesday 28 October. This includes a 1.55% variable bonus rate, payable to eligible customers.
ME CEO, Jamie McPhee, said the bank had moved rates to provide a balance between offering competitive home loan rates to customers on the one hand, and delivering acceptable rates of return for its industry super fund shareholders and their members on the other.
“Up until the Financial System Inquiry recently addressed the unfair capital advantages of the larger banks, smaller banks like ME have been achieving below-market shareholder returns in order to remain competitive with the majors.
“Last Financial Year ME reported a return on equity of 7.4% compared to the major banks’ average of 15.8%.
“The rate increase we have announced today puts us on a path where we can continue to grow the Bank while offering some of the best home loan rates available for working Australians.”
According to McPhee, ME has a target return on equity of around 10%, which will also be achieved through productivity gains enabled by its recent technology investment.
The non-major said both revenue and cost pressures have also increased over the last 12 months due to regulatory changes around liquidity, greater economic uncertainty, and stronger competition in the owner occupied market.