• 14/06/2024

NAB managers keen for rates hike after Reserve Bank holds fire

Peter Taylor | Herald Sun | October 07, 2010

Senior managers at National Australia Bank agitated for mortgage rates to be jacked up after the Reserve Bank kept the official cash rate on hold this week.

But board members baulked at the call, fearing the public backlash would cripple NAB’s strategy and year-long campaign to position itself as the people’s bank, BusinessDaily believes.

The revelation coincides with warnings from ANZ chief executive Mike Smith that “something has to give” as the banks hold fire on lifting mortgage rates while battling growing funding costs.

Mr Smith said there was a “mismatch” between home loan rates and deposit rates, which had blown out in relative terms since the onset of the global financial crisis.
“We are paying 160 basis points (1.6 percentage points) more on deposits than we were pre-crisis and in mortgages we are only up about 100 basis points,” he said.

“So something has to give at some stage.”

The banks also have complained of rising costs amid vigorous competition for the 30 they borrow abroad for every dollar they lend within Australia.

The Reserve Bank of Australia was widely expected to lift the base rate 0.25 percentage points to 4.75 per cent on Tuesday.

Analysts believe that, when the RBA instead sat on its hands, the retail banks tore up plans to hike mortgage rates “under the cover” of the anticipated rise in the cash rate.

Westpac all but ruled out any increase this month following the decision and ANZ said there was “no immediate trigger” for a rate change.

NAB and the Commonwealth Bank have said they “do not speculate” on changes.

The banks are now under pressure to wait until the RBA board meets on Melbourne Cup Day before they move on mortgage rates.

ANZ’s Mr Smith would not be drawn at a business lunch yesterday on whether his bank intended to lift mortgage rates out of step with the RBA.

“You never say never. We have to watch the situation and we continue to do that,” he said, adding that funding costs would “absolutely not” ease back to pre-crisis levels.

“We just continue to monitor the situation and we have to remain competitive.”

The discord over home loan pricing at NAB – which has the lowest standard variable rate among the major banks – suggests some within senior management are increasingly sceptical about the wisdom of its strategy to beef up by cutting prices.

It follows divergent reports on the strategy’s success and likely impact.

Figures published by the industry regulator, the Australian Prudential Regulation Authority, show NAB is significantly outpacing rivals in mortgage and household deposit growth. But analysts question the effectiveness of the strategy in bolstering earnings.


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