Further relief for bank profit margins expected
(15 April 2013 – Australia) Australian banks are basking in the lowest funding costs since the global financial crisis, but this has also put pressure on the lenders to pass on future interest rates in full.
Bank executives have argued that while short-term funding costs had fallen to lows, the price of securing longer-term funding remained persistently high.
Continued economic problems in Europe and pressures on the region's troubled banking system had been the main cost drivers.
Further relief for bank profit margins is expected to come as the three and five-year funding locked in during the depths of the global financial crisis is starting to roll off.
Banks argue that the main pressure is not global money markets, but rather competition for deposits among lenders. This is expected to intensify as more spare funds are ploughed into shares.
The Reserve Bank of Australia (RBA) recently played down the significance of a sharp drop in wholesale funding costs for lending rates, saying competition for deposits remained the key influence on banks' costs.
Last week the Australian Government stopped new investments in residential-mortgage-backed securities in response to better market conditions.
In recent years, banks have paid well over 150 basis points to secure the long-term funding.
Last week ANZ sold A$1.75 billion worth of five-year bonds at 85 basis points over benchmark swap and bank bill rates.
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