Banks claw back margins on mortgages

Banks clawed back margins on home loans in late 2011 with average interest rates on new variable mortgages declining by less than the overnight cash rate, the Reserve Bank of Australia (RBA) says.

In its latest quarterly monetary statement, the RBA noted that most bank and non-bank lenders had passed on in full its two interest rate cuts, made in November and December.

However, after accounting for the end of promotional discount offers introduced in mid 2011, average interest rates on new, full-documentation, variable home loans had declined by slightly less than the cash rate since October 31, the RBA said.

Interest rates on fixed rate mortgages also had decreased, and were, on average, 25 basis points below variable rates, the central bank said.

Overall, the average interest rate on all outstanding fixed and variable home loans had fallen by 44 basis points since October 31, in contrast to the RBA's interest rate cuts which totalled 50 basis points over the same period.

The RBA's board met on Tuesday kept the cash rate at 4.25 per cent, defying widespread expectations of a 25-basis-point cut.

Bank of Queensland on Thursday said its interest rates would remain unchanged, while ANZ Banking Group (ANZ) is expected to announces its rates decision later on Friday.

The RBA said annual growth in home lending had remained at between five and six per cent.

In late 2011, home lending growth was running at 5.8 per cent, having been anaemic over the last three years, producing a revenue drag for commercial banks.

But the big four have increased their group net interest margins (NIM) from 2.1 per cent in 2008, when home lending growth crashed to a 28-year low.

Banks' NIM across the big four lenders had widened to an average of 2.27 per cent by September 30, 2011.

At that time, NIM stood at 2.28 per cent at National Australia Bank (NAB), 2.25 per cent at Commonwealth Bank (CBA) and 2.22 per cent at Westpac.

ANZ's NIM was 2.44 per cent, having declined three basis points over the previous six months.

NAB on Tuesday, reporting unaudited cash earnings of $1.4 billion for the three months to December 31, said its NIM had dropped to 2.19 per cent.

Six basis points of that fall was due specifically to higher funding costs, NAB's executive director of finance, Mark Joiner, said.

The standard variable rate on home loans currently stands at 7.36 per cent at Westpac, 7.31 per cent at CBA, 7.3 per cent at ANZ and 7.22 per cent at NAB.

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