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'Difficult decision': CBA, ANZ Bank raise mortgage rates

The Age logo The Age 6/09/2018 Clancy Yeates

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Video provided by ABC News

Commonwealth Bank chief Matt Comyn has conceded customers might be cynical about the latest spate of interest rate increases from three of the four major banks, but he maintained the hikes were justified by higher funding costs.

CBA and ANZ Bank joined Westpac by raising mortgage rates on Thursday, in a move that a leading analyst said underscores the "oligopolistic nature" of the country's big banks and will bolster their profitability.

CBA will increase mortgage rates by 0.15 percentage points, while ANZ said it would increase rates by 0.16 percentage points, in response to higher costs "as well as consideration of business performance and market conditions".

ANZ is joining Westpac in raising interest rates. © Wayne Taylor ANZ is joining Westpac in raising interest rates. The moves, which came within about 25 minutes of each other, followed Westpac's move last week to hike mortgage rates. They leave National Australia Bank as the only big four bank that has not yet moved.

Mr Comyn said CBA had been absorbing higher funding costs for about six months, and argued that the reason the industry was moving now was because they were all under the same pressure.

“Clearly all of the financial institutions are seeing an increase in funding costs,” Mr Comyn said. “This is something that we’ve been observing for more than six months.”

Even so, the move by three of the big four to all raise rates within about a week is similar to a pattern of behaviour among banks that the competition watchdog has dubbed the "fast follower"approach, where rivals move soon after a bank makes an unpopular decision on rates.

'Sheer coincidence'

CBA and ANZ have joined Westpac in raising rates. © Louie Douvis CBA and ANZ have joined Westpac in raising rates. Mr Comyn said the fact that CBA and ANZ hiked rates on the same day was "sheer coincidence", but he could understand why some were cynical about three banks raising home loan costs in little over a week.

“I can certainly understand the cynicism. I think the reality is banking businesses have a similar input cost as it relates to funding costs," he said.

"So what we’re experiencing in the context of what it costs us to raise or to borrow money either from depositors or from international markets, other institutions are feeling those same costs at the same point in time.”

ANZ group executive Fred Ohlsson said hiking rates was a "difficult decision" given the impact on family budgets, but the bank's funding costs had been "elevated" since the Olistart of the year.

"The tough thing for us has been, we've absorbed for a long time now, and I guess that's why we came to this decision," he said.

However, UBS analyst Jonathan Mott said ANZ's rate hike more than offset the rise in funding costs, estimating the bank's move was twice as high as the funding cost "headwind." CBA's increase was closer to the headwind it faced, Mr Mott said.

'Oligopolistic nature'

CBA chief executive Matt Comyn said the fact that CBA and ANZ hiked rates on the same day was "sheer coincidence". © Peter Braig CBA chief executive Matt Comyn said the fact that CBA and ANZ hiked rates on the same day was "sheer coincidence". "Today’s announcements demonstrate the oligopolistic nature of the Australian banks and their ability to pass on additional funding costs and more to their customers," Mr Mott wrote.

CBA's change comes into effect on October 4, and ANZ's on September 27. ANZ said 70,000 customers in drought-declared areas of regional Australia would be excluded from the change.

Canstar group executive Steve Mickenbecker said it was likely the moves would be matched by other banks. "They are all in the same wholesale funding market, so if one feels it, they all feel it," Mr Mickenbecker said.

RateCity said ANZ's move would raise monthly repayments on a $500,000 mortgage by $50 to $2795. CBA's rate rise would raise repayments on a loan of this size by $47 a month to $2798.

The move leaves National Australia Bank as the only big four bank that has not raised interest rates in response to this bout of funding cost pressure.

A NAB spokeswoman said the bank "continuously" assessed interest rates.

Westpac last week was the first among the big four banks to lift variable mortgage rates this year, blaming an increase in its wholesale funding costs. Westpac's 0.14 percentage point increase was about half the size of a standard move in official rates set by the Reserve Bank, which has not moved rates in two years.

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