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Hopes for bank rate cut dashed

ANZ Bank (ASX: ANZ) has dashed any hopes of mortgage holders that the banks would cut rates outside the Reserve Bank’s (RBA) monthly rate decision.

In an announcement today, ANZ decided to leave its variable rates for Australian retail mortgages unchanged.

ANZ CEO Australia Phil Chronican said, “We have seen some easing of new funding costs from both wholesale markets and domestic deposits over recent months which has taken some of the pressure off what had been a relentless rise in funding costs since late 2007.”

He added, “Combined with other factors however, the range of ongoing pressures saw the ANZ Group’s net interest margin fall slightly in the first quarter of our 2013 financial year.

In other words, despite wholesale funding costs halving and deposit costs easing, the difference in its borrowing costs and what it earns on lending those funds out is narrowing. In ANZ’s February trading update, the bank identified lower returns on retained capital due to the low interest rate environment, and asset pricing pressure as contributing to the slight dip in net interest margin.

It seems likely that the other big banks, including National Australia Bank (ASX: NAB), Westpac Banking Corporation (ASX: WBC) and the Commonwealth Bank (ASX: CBA) will be feeling the same pressures and are therefore unlikely to cut variable mortgage rates. That’s unless the RBA cuts the official cash rate, and even then, the banks may not pass on the whole cut.

Foolish takeaway

Mortgage holders may now have to actively consider smaller, cheaper lenders, rather than wait for the big four to cut rates for them. Several lenders already offer lower interest rate mortgage loans than the big four. Borrowers could save thousands over the life of the loan by switching.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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