Via Banking Day:
While there have been plenty of lenders dropping fixed rates in recent months, few have cut their variable rates. That changed last week when ANZ, AMP Bank and Bendigo and Adelaide Bank bucked the trend.
ANZ cut the discount on its Simplicity Plus principal and interest rate for new loans with loan to valuation ratios below 80 per cent. In effect, it cut the rate by 37 basis points to 4.09 per cent.
AMP cut its variable rate for new borrowers to 3.79 per cent. The lower rate applies to owner occupiers taking out principal and interest loans between A$500,000 and $750,000.
Bendigo Bank cut its basic variable rate for owner occupiers paying principal and interest by 49 bps, from 4.28 per cent to 3.79 per cent.
Canstar reports that more than 40 lenders have cut fixed rates this year. The latest are NAB and Virgin Money.
BBSW is still falling, easing funding costs, down to 23bps above cash from a peak at 60bps.
These are marginal cuts for high caliber (low LVR borrowers). From last week:
Veteran CLSA bank analyst Brian Johnson said while funding costs had fallen, margins were still under pressure due to increased costs as investors coming to the end of their interest-only periods are forced to switch mortgage products to pay off both the principal and interest. Switching from variable to fixed products was also taking place.
“Wholesale [funding] is better and deposits are better but the latest results show switching has been worse,” he said.
“Switching is worse and front-book discounting is worse too, and because credit growth is slowing, revenue growth is slowing too.”
As the BOQ result showed, profitability at the banks is now structurally challenged so I see little prospect of out of cycle easing, though at least we’re no longer talking out of cycle tightening:
- lending down;
- NIM down;
- costs up;
- impairments up;
- profits down;
- dividend cut, and
- no relief in sight.
Equally, that’s why we’re seeing job cuts at the majors and why they will keep half of the coming RBA cuts for the same reasons.