Citibank is facing a backlash from politicians and consumer groups this morning after moving to claw back recent home loan rate cuts from new borrowers.
In a controversial move that undermines the Reserve Bank's efforts to relieve pressure on household budgets and boost spending in the economy, Citi yesterday became the first bank in more than six months to hike standard variable rate loans for owner occupiers.
The bank increased rates on new standard variable loans for owner occupiers by 0.23 per cent to 3.19 per cent and in the process wiped out most of the pricing relief it created for new borrowers after the RBA's official cuts in October and July.
Citi passed on only 15 basis points of the RBA's 0.25 per cent cut in October and only 18 basis points of an identical reduction to the cash rate in July.
The bank began applying the hike to new mortgage applications yesterday (4 December).
The repricing move came only five days after Citi's new Australian chief executive Marc Luet made his first appearance before the House of Representatives economics committee, chaired by government MP, Tim Wilson.
In an email to Banking Day last night, Wilson indicated that Luet would be asked to explain the bank's pricing action when he fronts the committee next year.
"I look forward to asking about their approach at Citi's next appearance before the Economics Committee," Wilson said.
In response to questions from government backbencher Craig Kelly at last Friday's hearing, Luet conceded that the easing of monetary policy was taking a toll on Citi's revenue.
"Certainly the rate cuts have an impact," the Citi boss told the committee.
"They have had an impact on our consumer revenues.
"I would say, just on the strategic element of that…the concern I have is not necessarily only the mathematical impact of a 25-basis-point cut in the rate; it's, as we approach extremely low rates, what might happen to the macro-economic environment."
While a Citi spokesperson said yesterday that existing borrowers would not be affected by the hikes, she also confirmed that the bank was boosting rates for new borrowers across its range of mortgages, including fixed rate loans and most investment products.
In answers to several written questions from Banking Day as to how the bank could justify the increases, the spokesperson said:
"Citi is making this change to ensure we can prioritise existing applications, and improve our processing times while still offering a competitive rate," the spokesperson said.
"Our previous rate was one of the most competitive in market, and launched in line with the peak Spring period."
"We regularly review and adjust our rates through the year, and the new rate remains competitive."
The spokesperson did not cite declining profitability of the bank's mortgage business as a factor, despite confirmation from Citi's head of consumer banking Alan Machet last week before Wilson's committee that interest margins were under pressure.
Revised rate cards issued to brokers yesterday morning show that pricing for most owner occupier fixed rate mortgages will rise by 0.15 per cent, although Citi's five year fixed rate has been ratcheted up 0.25 per cent to 2.99 per cent.
Rates on most principal and interest mortgages aimed at investors have risen by 0.1 per cent, but the five year fixed rate has been increased by 0.2 per cent.
Several variable interest-only mortgages have gone up by 0.2 per cent.
While Luet clearly is moving to shore up Citi's Australian earnings, the timing of the mortgage increases could be risky for the bank given the heightened public scrutiny of the sector following the Westpac scandal and lenders refusing to pass on the full official rate cut in October.
However, in his short time running the local business, Luet has displayed no shyness in withholding rate relief from customers.
In early October the bank hiked rates on most products in its credit card suite, which resulted in the retail purchase rate on the Citi Rewards Signature card and the Citi Simplicity card each rising 0.5 per cent to 21.49 per cent.
Cash advance rates on the same cards also increased 0.5 per cent to 22.24 per cent.