SYDNEY: Australia & New Zealand Banking Group Ltd. failed to pass on in full the central bank’s quarter-point cut in official interest rates, receiving an immediate rebuke from Treasurer Josh Frydenberg.
"I am very disappointed in the decision by the ANZ Bank today,” Frydenberg said in a televised press conference after the Melbourne-based lender reduced its key variable rate by 18 basis points to 5.18%.
After Frydenberg spoke, Commonwealth Bank of Australia, the nation’s largest home-lender, said it will reduce its mortgage rates by the full 25 basis points.
Holding back some of the rate cut is risky after the reputations of the nation’s biggest lenders were battered during an inquiry into financial industry misconduct.
The probe uncovered a string of scandals that has seen lenders pay out hundreds of millions of dollars in compensation to customers given poor financial advice and charged for services they never received.
"I have made it very clear to the banks that the public have legitimate expectations that they will see the full benefit of rate cuts such as those announced by the RBA today,” Frydenberg said.
"Actions like this don’t give the Australian people any confidence that the banks have changed their behavior.”
The banks are seeking to bolster profit growth after a disappointing results season that saw earnings crunched by shrinking net interest margins and a slowdown in lending.
"While we recognise some home loan customers will be disappointed, in making this decision we have needed to balance the increased cost in managing our business with our desire to provide customers with the most competitive lending and deposit rates possible,” Mark Hand, the head of ANZ Bank’s Australia retail unit, said in a statement.
ANZ Bank’s decision may receive further criticism, given funding costs have fallen this year, having climbed last year.
Australian banks, which are reliant on offshore borrowing to fund their loan books, have benefited after the U.S. Federal Reserve killed off the prospect of further interest rate hikes, and traders started to price in the likelihood the Fed will soon start cutting rates.
"I think there’s an element of social responsibility” for banks to pass on the rate cut in full given the state of the housing market, said Kerry Craig, global market strategist at JPMorgan Asset Management in Melbourne. "But then you worry about the banks’ interest margins and their profitability.”
The move to hold on to some of the rate cut may also mute the benefit to the property market, which is starting to show signs of emerging from a near two-year slump. Australia housing values have fallen 8.2% since peaking in September 2017, according to CoreLogic Inc., led by steep declines in Sydney and Melbourne. - Bloomberg
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