Banks resisting cuts in lending margins

Two big-bank CEOs yesterday reiterated the message that they expected to continue to repair margins on their loan portfolios, and that as a result customers cannot expect interest rates to fall in line with any cuts to the cash rate set by the Reserve Bank of Australia.

In a speech to the Trans-Tasman Business Council in Auckland yesterday, ANZ's CEO Mike Smith said that as older, less expensive funding matures and is replaced with more expensive funding the average cost of funds is increasing.  
 
"To be explicit, the average cost of funds is still rising, even though the marginal cost of funds appears to have stabilised over the past month," Smith said.

Ralph Norris of CBA said at the analyst briefing yesterday that "I think it's fair to say that where we currently sit on pricing is not where we would like to sit in the future.

"I think it's fair to say that over time we would expect that the margin on home loans will revert to a level which is consistent with where it was, say, 12, 13 months ago."

In contrast, Phillip Lowe, assistant governor of the Reserve Bank of Australia, took a different line in a talk at the Retail Financial Services forum held in Sydney yesterday.

Lowe noted the fall in bank bill rates in recent weeks, a fall between 20 basis points (on 30-day money) and 40 basis points (on 90-day money) over the last three weeks.

"I think that means that there's no obvious reason that the banks could not pass through any change in the cash rate," Lowe said.