The major banks incurred, once again, the wrath of politicians and media over the last week when they failed to pass on the full 25 basis points cut in the cash rate and National Australia Bank didn't reduce its mortgage rate at all.
With its media release last Tuesday, NAB included a six-page presentation explaining its cost of funds and why it would not be reducing mortgage rates at this time. Key to NAB's argument is the cost of customer deposits and term deposits in particular, which account for around 50 per cent of NAB's total funding.
NAB says the margin paid on term deposits has ranged from 50 bps to 150 bps over the 90-day bank bill rate since 1 October 2008. Pre-GFC the margin was 15 bps below bills.
These are of course averages across the bank's term deposit maturity structure and over time, during which term deposits rates have fluctuated, but steadily trended down. This makes it hard to evaluate the accuracy of the figures.
NAB says its current margin paid on term deposits is 110 bps over the 90-day bank bill rate, but a glance at its website and term deposit rates on offer does not necessarily support this. The 90-day bank bill rate is currently around 3.1 per cent, and NAB is offering 2.15 per cent for 90 days - this is a negative margin of 95 bps.
The bank's blackboard specials are at 3.3 per cent to 3.4 per cent - a premium of 20 bps to 30 bps and its top rate is 4.25 per cent, which is in line with its claimed margin, but this is for a two-year term to maturity.
As for credit margins on the banks' wholesale debt, the chart below shows that margins for the big four appear to have stabilised over the last few months at 130 bps and 140 bps for three- and five-year maturities in the domestic market. There has been no issuance by the majors for any other terms. Credit margins for offshore funding appear to be similar.
20090414 pic for Bayley