ABA comments on banks follow RBA rates decision
(05 December 2012 – Australia) The Australian Bankers’ Association (ABA) released a statement on Monday regarding the speculation on whether banks will follow the Reserve Bank of Australia (RBA)’s decision.
ABA chief executive, Steven Münchenberg, said: "There’s always speculation regarding individual banks’ pricing decisions on loans and deposits at this time."
"The ABA is not involved in pricing decisions on loans and deposits. Banks make their individual pricing decisions based on a range of factors."
"However, the ABA is always asked to comment on funding costs across the industry because it is one of the factors which influence banks’ pricing decisions."
In the recent Statement on Monetary Policy, the RBA noted: "Bank funding costs – relative to the cash rate – have risen by about 50 basis points over the past year..."
"The rise in bank funding costs relative to the cash rate over the past year largely reflects the increased cost of deposits."
Münchenberg said the RBA cash rate has reduced 150 basis points since November last year, but with banks, credit unions and building societies facing real funding cost pressures, not all of that has been passed on.
The Reserve Bank calculates that the major banks have cut standard variable home loan rates by an average of 115 basis points.
"While the Reserve Bank has identified that average funding costs have increased by 50 basis points, banks have only passed on 30 – 35 basis points to most home and small business borrowers."
"At the same time, banks have only passed on about half the cash rate cuts to savers with term deposits."
"The Reserve Bank understands the cash rate is just one component of the true cost of banks’ funding and therefore does not expect banks and other lenders to exactly match every cash rate movement."
"For small business lending backed by residential security, banks have passed on more of the cash rate cuts, reducing the average loan by up to 120 basis points."
"Banks are facing higher funding costs mainly due to the competitive rates being paid on deposits."
"Prior to the GFC, term deposits were priced on average 200 basis points below the cash rate. Now, they are 20 basis points above the cash rate," Münchenberg said.
"The ABA is not involved in pricing decisions on loans and deposits. Banks make their individual pricing decisions based on a range of factors."
"However, the ABA is always asked to comment on funding costs across the industry because it is one of the factors which influence banks’ pricing decisions."
In the recent Statement on Monetary Policy, the RBA noted: "Bank funding costs – relative to the cash rate – have risen by about 50 basis points over the past year..."
"The rise in bank funding costs relative to the cash rate over the past year largely reflects the increased cost of deposits."
Münchenberg said the RBA cash rate has reduced 150 basis points since November last year, but with banks, credit unions and building societies facing real funding cost pressures, not all of that has been passed on.
The Reserve Bank calculates that the major banks have cut standard variable home loan rates by an average of 115 basis points.
"While the Reserve Bank has identified that average funding costs have increased by 50 basis points, banks have only passed on 30 – 35 basis points to most home and small business borrowers."
"At the same time, banks have only passed on about half the cash rate cuts to savers with term deposits."
"The Reserve Bank understands the cash rate is just one component of the true cost of banks’ funding and therefore does not expect banks and other lenders to exactly match every cash rate movement."
"For small business lending backed by residential security, banks have passed on more of the cash rate cuts, reducing the average loan by up to 120 basis points."
"Banks are facing higher funding costs mainly due to the competitive rates being paid on deposits."
"Prior to the GFC, term deposits were priced on average 200 basis points below the cash rate. Now, they are 20 basis points above the cash rate," Münchenberg said.
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