NAB, and RBA, opens the door to margin increases
Yesterday's fee cut announcement from NAB opens the door to further increases in rate margins for the banks. Moving standard variable mortgage rates up by more than the RBA's rate hikes was politically difficult for the big banks before yesterday, but now looks a virtual certainty.
"The fee reductions will help smooth the path (and thus increase the probability and scope) for further margin expansion," wrote analyst Ben Koo in Goldman Sachs JBWere Afternoon Market Report yesterday. "The changes will help reduce the risk of regulatory intervention."
The Bank of Queensland result highlighted that margins for the banking sector are on the rise, said Koo.
Although Personal Banking Group Executive Lisa Gray said the bank would not be acting to recoup the cost of cutting fee revenue, she did not categorically rule out rate rises.
"At this point in time we don't anticipate having to raise rates outside of the RBA's cycle," she said yesterday.
The cycle is about to provide plenty of opportunity.
A pretty hawkish talk by the governor of the Reserve Bank of Australia, Glenn Stevens, yesterday has set the scene for a swifter and sharper realignment of monetary policy.
Speaking in Perth, Stevens adopted clearer language than used in recent RBA missives to spell out the shift in policy - which will mean increased nominal and real interest rates for all borrowers at a time of declining demand for (and still, maybe, for business, restricted supply of) credit.
The RBA may be expecting credit aggregates to rebound, given other economic indicators such as improving measures of business and consumer confidence.
The key passage in Stevens' talk was that the RBA board "is conscious that a risk-management approach requires policy to be recalibrated as circumstances change.
"If we were prepared to cut rates rapidly, to a very low level, in response to a threat but then were too timid to lessen that stimulus in a timely way when the threat had passed, we would have a bias in our monetary policy framework. Experience here and elsewhere counsels against that
approach.
"None of this is to say that the economy is, at this moment, 'too strong'. It isn't.
"The point is, rather, that the very low interest rate settings were designed for a weaker economy than we are in fact facing. Plainly, the downside risks to which the [RBA] board was responding earlier have not materialised.
"This is not a problem. In fact, it is a very desirable situation. It is a welcome contrast to the experience of a number of other countries. It is simply something we need to recognise in setting monetary policy - which means not holding interest rates at very low levels when that is no longer needed."