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Banks to slash loan discount rates due to politcal pressure

Australia’s banks may find themselves forced to cut discounts on home loan rates to avoid having to increase their standard variable home loan rates outside the RBA’s changes.

ANZ BankThe ‘big four’ banks are struggling to maintain their home loan status quo as higher wholesale funding costs increase the pressure on banks to raise their home loan rates. But faced with the potential political backlash for increasing interest rates out of sync with the RBA’s cash rate changes has lead to banks reconsidering their discount rates for new home loans, The Australian reports.

ANZ bank’s Australian chief executive Phil Chronican told the paper that banks were looking at the “value-based pricing” on mortgages, with discounts offered on the standard rate to be trimmed, along with reducing brokerage fees.

ANZ, which has home loans worth $140 billion on the bank’s books, which had lost about $40 million through increased wholesale funding costs the newspaper reports. ANZ’s rival Westpac, with $250 billion of home loans on its books, lost $120 million to wholesale funding increases, and has forecast a 15 point fall in home loan margins.

“The cost of funding a home loan portfolio is continuing to go up and retail deposit rates and wholesale funding spreads are high,” Mr Chronican told the Australian.

In 2008, Treasurer Wayne Swan strongly criticised both ANZ and NAB for increasing their home loans out of step with the increases in the RBA cycle, ANZ and the other banks wish to avoid such negative political pressure in the future.

“Now on the basis of the evidence presented to me by the key economic officials, the increase in the average cost of funds to the major banks is much more in line with the increase announced by the NAB (National Australia Bank Ltd), than the increase announced by the ANZ,” Mr Swan said in 2008.

“So on the basis of all the evidence that I have received, I do believe that the ANZ’s rise is excessive.” he continued.