National Australia Bank Ltd (ASX: NAB) has taken the interesting move of not increasing its interest rate whilst its peers of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) all decided to.
NAB decided to hold its standard variable rate for home loans at 5.24%. It decided to stay put with the interest rate to rebuild the trust of customers. This decision is on the back of ASIC deciding to sue NAB for the fees for no service scandal.
The bank's net interest margin (NIM) has been hurt in recent months with wholesale interest rates rising in the US. Smaller banks have been raising rates to combat the increasing costs and most of the big banks have decided to increase too.
However, NAB CEO Andrew Thorburn did say that NAB will continue to regularly review its rates and assess whether current market conditions. He said "By focusing more on our customers, we build trust and advocacy, and this creates a more sustainable business."
According to NAB, a customer with a $500,000 home loan would have paid an extra $47 each month, or $564 per year, on their repayments based on an owner occupier, principal and interest loan over a 30-year term.
This seems like an honourable move by NAB. The big banks make billions of profit each year, it isn't a very competitive environment if when their costs go up they can all increase their rates with no detrimental effect because customers don't have a choice, or there are large moving costs.
However, if I were a NAB shareholder I'd be a little annoyed it didn't follow its peers, even if the increase was smaller than the other bank increases.
Foolish takeaway
NAB is currently trading at under 12x FY19's estimated earnings with a grossed-up dividend yield of 10.2%. Whilst it is better value than before the Royal Commission I will personally be avoiding the big banks unless there is 'blood on the streets'. I think there are better growth options out there.
