Banks need more mortgage re-prcing

From Morgan Stanley:

ANZ lowers P+I rates by5bp, but lifts IOLrates by30bp: On Friday, ANZ announced a 5bp reduction in variable rates for principal and interest (P+I) loans and a 30bp increase for interest only loans (IOLs) “in response toregulatory and market conditions”. This means ANZ’s rate for OOL P+I loans will be the lowest of the majors, but its rate for both OOLand IPLIOL will be the highest.

Further differentiated re-pricing included in our forecasts: While ANZ stated that the decision “is not in response to the recently announcedbank levy”, we think differentiated home loan re-pricing is likely to continue. Our forecasts for the majors already include two additional rounds of re-pricing to mitigate the impact of the bank levy and a likely increase in capital requirements. All else equal, ANZ’s re-pricing is equivalent to an 8bp rate rise across the mortgage book, adding an annualised >2bp to group margins and ~1.5% to profit.

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.