No surprise if banks don’t move
(8 December 2011 – Australia) There would be no surprise if banks don’t pass along a full rate cut, says Australian Banker’s Association (ABA) chief Steven Muchenberg.
He said the Reserve Bank of Australia (RBA) was aware of the possibility of major banks not passing on the rates cut as they brace for more trouble on global funding markets.
"It’s not going to be a surprise to the RBA should one or more banks decide not to pass along the full rate cut," said Muchenberg. "The RBA would have factored that into their decision."
Borrowers are still waiting to learn whether any of the major banks lower their mortgage rates after the RBA cut the interest rate to 4.25 percent from 4.5 percent, in response to the worsening sovereign debt crisis in Europe.
The RBA in its accompanying statement on Tuesday said, "Short-term market interest rates have tended to decline a little further in recent weeks, though term funding conditions for financial institutions have become more difficult."
Muchenberg said the thinking of the banks centred in part on their need to protect themselves from possible fallout of the European sovereign debt crisis on the local economy. That in turn would send a positive message about the strength of the local banking system to overseas investors.
Australia's major banks borrow about 33 cents for every dollar they lend on international wholesale markets. The major banks must raise about A$100 billion over the next 12 months, according to banks’ annual reports.
In the event Europe continues to stumble, Muchenberg said, bank profit margins are an insurance against bad debts.
On the positive side, the pressure in the wholesale funding markets would feed back to the deposit markets in Australia, he said.
"So banks will be prepared to pay higher amounts, particularly for larger deposit if that means their reliance on overseas money is reduced," he said.
"It’s not going to be a surprise to the RBA should one or more banks decide not to pass along the full rate cut," said Muchenberg. "The RBA would have factored that into their decision."
Borrowers are still waiting to learn whether any of the major banks lower their mortgage rates after the RBA cut the interest rate to 4.25 percent from 4.5 percent, in response to the worsening sovereign debt crisis in Europe.
The RBA in its accompanying statement on Tuesday said, "Short-term market interest rates have tended to decline a little further in recent weeks, though term funding conditions for financial institutions have become more difficult."
Muchenberg said the thinking of the banks centred in part on their need to protect themselves from possible fallout of the European sovereign debt crisis on the local economy. That in turn would send a positive message about the strength of the local banking system to overseas investors.
Australia's major banks borrow about 33 cents for every dollar they lend on international wholesale markets. The major banks must raise about A$100 billion over the next 12 months, according to banks’ annual reports.
In the event Europe continues to stumble, Muchenberg said, bank profit margins are an insurance against bad debts.
On the positive side, the pressure in the wholesale funding markets would feed back to the deposit markets in Australia, he said.
"So banks will be prepared to pay higher amounts, particularly for larger deposit if that means their reliance on overseas money is reduced," he said.
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