CBA and NAB cut rates but withhold a large chunk of the Reserve Bank’s reduction

Commonwealth Bank will lower its standard variable interest rate by 40 basis points joining the National Australia Bank in holding back some of the Reserve Bank’s 50 basis-point cut earlier this week.

Standard variable rate loans at CBA drop to 7.01% from Friday, May 11 but the bank did not reveal its rate changes for deposits, saying those rates remain under review.

“In making this decision, the group has continued to balance the interests of its 1.8 million home loan borrowers with those of its 11 million depositors,” CBA said in a statement.

Today’s move by CBA betters the deal offered by NAB, which yesterday cut 32 basis points from its borrowing rates.

NAB depositors will be hit with the full Reserve Bank cut of 0.50 points, suffering a slide in their earnings from 4.15% to 3.65%.

The Treasurer, Wayne Swan, has labelled the move “an insult to hard-working Australians”.

“Customers with a mortgage or small-business loan will rightly feel short-changed,” he said.

“NAB and all the major banks are booking huge profits. Customers shouldn’t hesitate to ditch any bank that takes them for a ride with decisions like this.”

Westpac and ANZ are yet to announce how much of the rate cut they will pass on. Westpac will make an announcement tomorrow, while ANZ has said it will not make a decision until May 11.

Both banks have posted bumper first-half profits this week with Westpac’s cash profit coming in at $3.195 billion, up 1% from a year earlier, ANZ also lifted its first half profit by 1% to $2.92 billion but said margins in its Australian business are declining.

John Edwards, chief executive of property information firm Residex, told SmartCompany he was not surprised by the bank’s failure to pass on the full extent of the rates cut.

“Everyone is going to find it disappointing, but I think it is understandable, the reason for the RBA’s 50 basis point move was because the RBA expected this would occur,” says Edwards.

“The cost of funds for the banks has become more expensive as they have to rely on retail deposits more than the international market.”

Edwards says it is unlikely a reduction “of this level” does much to assist business, but what it may do is restore some confidence so the retail sector sees some uplift.

“Of course all of this could be totally thrown out the door with the release of the Federal Government Budget next week, it could be totally annihilated,” says Edwards. 

“I expect the Budget will have a deleterious effect so I think there will be another rate cut in June of 25 basis points.”

The Australian Industry Group told SmartCompany it was essential that the banks passed on the rate cut in full.

“The RBA made this cut to the cash rate in order to stimulate the economy, which is clearly flagging,” says Innes Willox, chief executive of the AIG.

“But in order for this policy easing to boost the economy to the extent intended, the RBA really needs all of the Banks to pass on the latest rate cut in full.

“The more they can pass on, the bigger are the benefits of this policy stimulation for the whole economy.”