Banking News

Westpac hikes interest rates on business loans

(23 February 2016 – Australia) Westpac has become the latest of Australia’s Big Four to increase interest rates for businesses.

The bank announced changes that will mean rates set in reference to a bill margin will rise by 0.23 of a percentage point. Rates other types of business loans will lift by 0.19 percentage points.

Lines of credit – which allow customers to borrow against the equity they hold in their home – are also getting more expensive.

Rates on lines of credit will increase by 0.17 of a percentage point for customers with a Westpac-branded loan, and 0.15 of a percentage point for customers of St George.

The bank was lifting rates on business loans because of the lift in banks' wholesale funding costs, and rules requiring banks to be better capitalised, Westpac said.

"Business lending activity in our commercial and business banking division has experienced increased costs, including higher funding costs, which has impacted returns," the bank said.

"While we have been disciplined in managing our margins, over the long term all businesses must deliver sustainable returns."

The move follows ANZ, who raised business interest rates by 0.21 of a percentage point, as well as increasing rates on lines of credit by 0.27 of a percentage point. NAB hiked rates by as much as 0.29 of a percentage point in early February.

The Commonwealth Bank (CBA) has not yet raised business interest rates, however, it has not ruled following suit.

Capital funding costs have been the unifying reason provided by NAB, ANZ and Westpac for the rate hikes. However, Reserve Bank governor Glenn Stevens recently said the rise in wholesale funding costs had not large enough to permit banks increasing their lending rates out of line with the central bank.

"I do not see much of a case for independent increases in lending rates based on funding costs as they have evolved just lately," Stevens said.

The banks may face a back lash from business customers should they raise rates higher. East & Partners recently found that one in two Australian businesses would look to switch banks if interest rates rose by more than half a percent.

Further, the research showed that thirty percent of respondents indicated that they would switch banks if rates rose by more than 0.50 percent. Nearly 14 percent of Australian enterprises would switch banks if interest rates rose by 0.25 to 0.50 percent, while a further 10 percent would churn if rates rose by 0.25 percent.