The media has once again given us a phony war with bank mortgage and interest rate cuts.
That’s phony in that the media hasn’t gone far enough in pointing out just how inadequate the responses so far from the big four banks to Tuesday’s 0.25% RBA rate cut have been.
While many of us are bank shareholders, we also use banks every day and it’s of concern that the prospects for savers and those in small business and credit card holders are not being mentioned.
They will be the ones who will really feel the impact of the banks desire to rebuild profit margins, not home mortgage holders.
We know the big four: CBA, ANZ, Westpac and NAB are sitting back and waiting for one of them to bolt from cover, so the others can get a lead on how much of the 0.25% rate cut to pass on.
The tip is that the NAB will break cover soon with a rate cut of around 0.15% to 0.20% (it only passed on 0.20% of the 0.25% November 1 cut, remember).
The NAB has been a far more aggressive lender since it ‘divorced’ its peers last year to try and grab market share from its competitors, which it seems to be doing, especially in business banking and home mortgages.
But despite the best attempts of the media to paint the big four as ‘scrooges’ we know they are, it’s the moves by two smaller banks, Bank of Queensland and ME (Members Equity) to pass in the RBA cut in full which has exposed their larger peers for the opportunists they are.
And the smaller banks like the two above face higher costs for raising funds locally (being smaller and carrying lower credit ratings than the big four). And yet they passed on the rate cut within hours.
Bendigo and Adelaide Bank was conspicuous by its silence as well.
And, what the media forgot yesterday in their attacks on the big four is that the quartet all has past form in this area.
For example, in April 2009 during the global financial crisis – three eventually passed on only 0.10% of the 0.25%, while one passed on nothing.
And remember how the big four boosted their mortgage rates by more than the 0.25% rise in November 2010?
How quickly we forget.
A reminder: the CBA and ANZ lifted mortgage rates by 45 and 39 basis points, respectively in the wake of the Melbourne Cup Day rate rise in 2010. The NAB lifted its standard variable mortgage rate by 0.43% and Westpac by 0.35%.
And there are a couple of other points to be made: the cuts won’t have all that great an impact on mortgage holders because well over half of them repay more than they have to each month, thereby building up equity at an even faster rate than they were doing a year ago.
The banks get their money back faster and people will own their houses a bit quicker and newer mortgage holders will find the pressure easing, if they cut their repayments.
But most won’t. It’s a sort of win-win situation for the banks and the borrowers.
And that brings us to the question of savers.
They get less for their term deposits as they rollover and will get lower rates on their transaction accounts.
For people on fixed incomes, it’s another blow, and yet you don’t hear much about that in the media which concentrates on mortgage holders (Is that because many in the media have mortgages?).
The damage is greatest among older bank account holders and pensioners, especially those who rent or live in shared accommodation.
And you can bet that the banks will be quick to cut deposit rates, and slow to cut rates charged on credit cards and loans to business: all in the name of boosting what’s called their net interest margin and improving their bottom lines.
So the old, the young, those without home mortgages, and small and medium businesses will all feel the impact of this rate cut to a greater degree than most mortgage holders (and remember those negatively geared investors get a return from their tax deductions).
But there is one final point which the media have so far failed to make strongly, if at all, and that is back in the GFC in 2008-09, we taxpayers supported the banks and other financial institutions and got them through the crisis.
There were borrowing guarantees (which will give the federal government around 5 billion or more in fees by the end of this financial year), the financial claims scheme which protected most bank deposits and continues to do so and the activity of the Reserve Bank in 2008-09 which provided tens of billions of dollars of liquidity and funds to the banking system to keep it afloat in the dark days after the Lehman Brothers failure.
Taxpayers provided that support to the banks and their shareholders (which do include many investors).
But now the big four are playing hardball in the name of protecting their profit margins.
They should also remember than many of their customers kept them in business and cut rates accordingly.
The big four remain very highly-rated among global banks; despite last week’s small reduction to AA minus by Standard & Poor’s Australia’s rating is AAA.
They do not operate in the UK, US or Europe where there is real pressures on profits, revenues and solvency and liquidity.
There is nothing wrong with profits and nothing wrong with companies trying to protect those, so long as it’s done legally and equitably.
We benefit from profitable banks, but banks also profit from having happy customers.
We should remember that banks are profit-making companies, not charities, and not be shocked when they try to maximise an advantage.
We should also remember that if we are shareholders, we make sure
