Margin management no surprise

Ian Rogers

Trends in bank funding costs received yet another review in the Reserve Bank of Australia's quarterly Statement on Monetary Policy on Friday, with the RBA's data providing implicit support for the interest rate pricing decisions of banks announced late last week.

The RBA said it estimated that the funding costs for banks, relative to the cash rate, had increased by about 20 basis points since mid-2011.

It said this partly reflected the effects of ongoing competition for deposits, especially term deposits.

The RBA noted that spreads on unsecured bank bond spreads remain around 55 basis points higher than in mid-2011.

While this spread is lower than three months ago, the RBA said the "the cost of… newly issued bonds is still around 20 basis points higher than the average cost of banks’ outstanding bonds."

On the other hand (and as reported in the following article), many spreads on term funding are even lower than this.

Against this background, more lenders announced changes to key lending (and some deposit) rates on Friday, as the market adjusted to the cut of 50 basis points in the RBA cash rate last Tuesday.

On the asset-side, pricing decisions were diverse.

Westpac said it will reduce interest rates on variable-rate loans to business by 50 bps. And the bank cut its variable-rate home loans by between 37 bps and 41 bps, depending on the brand under which a loan is sold.

Bendigo Bank cut its variable rate by 35 bps.

Commonwealth Bank cut rates on one of its Bankwest-branded home loans by only 32 bps, however, compared with a cut of 40 bps on the bulk of the bank's home loan book

NSW Police Credit Union cuts its premium home loan rate by 40 bps and its "value" home loan rate by 50 bps.