MENU

ANZ drops rates by 0.27%

ANZ Bank (ASX: ANZ) has trumped its rivals by becoming the first bank to lower rates by more than the Reserve Bank’s (RBA) cut to official cash rates.

The news confirms that Australia’s banks are seeing lower wholesale funding costs. Earlier this week, Australia’s Central Bank cut rates by 0.25% or 25 basis points. ANZ’s competitors Commonwealth Bank (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corporation (ASX: WBC) all matched the RBA’s cut.

ANZ’s standard variable home loan rate will fall to 6.13%, equal to National Australia Bank’s, and the lowest rate of the four banks. Commonwealth’s rate is 6.15%, while Westpac’s is 6.26%. ANZ chief executive for Australia, Phil Chronican said, “While competition for deposits remains strong, our overall funding cost has allowed us to reduce the variable rate by 0.27%.”

Borrowers will save around $60 a month or $750 a year on the average loan of $280,000.

With interest rates falling, and economists still expecting at least one more rate cut this year, the banks will be hoping they lead to stronger credit growth. Since the GFC, credit growth has dropped from double digits to low single digits. In the 12 months to March, credit growth fell to 4.4%, its lowest level in the 36 years the RBA has been publishing the figures, while business borrowing was even lower at 1.6%.

Despite the 1.75% in official rate cuts since November 2011 (before this week’s cut), credit growth has struggled to rise. For the banks, such low credit growth means earnings will struggle to grow, and increasing earnings has been mostly driven by cost cutting.

It also means banks have had to increase their payout ratios to increase dividends by more than the level of credit growth, but that’s sustainable for only so long. If the recent rate cut provides a boost to credit growth, then banks should be able to maintain or increase their dividends on the back of rising earnings – and possibly justify their current high valuations.

Foolish takeaway

The news doesn’t auger well for investors with cash in term deposits and savings accounts. We may yet see the banks cut those rates for depositors to compensate for the cut to home loan borrowers. All the more reason to invest in good quality companies paying a decent, sustainable dividend.

In the market for high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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). Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!