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Banks striking 'balancing act' with rates

AAP logoAAP 3/08/2016 Petrina Berry

The decision by the big four banks not to pass on the Reserve Bank's rate cut in full to mortgage holders has been met with widespread criticism, with even Prime Minister Malcolm Turnbull demanding they explain their actions.

But the reasons Commonwealth Bank, Westpac, National Australia Bank and ANZ all opted for a mix of slim mortgage rate cuts and hikes for some fixed-term savers are clear, according to banking analysts.

"Increasing those term deposit rates partially offsets the political pressure from withholding about half of the RBA's cut," Morningstar head of Australian banking research David Ellis said.

"They have one eye on keeping shareholders happy and the other on keeping their customers happy. It is a balancing act and I think they've got it right this time."

Mr Ellis said the banks' home loans book was much bigger than their term deposits business.

Lifting some deposit rates rather than passing on the full rate cut to mortgagees will protect their profit margins which are under pressure from a competitive home loan market, tightened capital requirements and wholesale funding costs, he added.

Bessie Hassan, from comparison website finder.com.au, said this continued a trend seen after the RBA's rate cut in May where some banks increased term deposit rates for the first time in recent history.

"Cash rate cuts hurt retirees and anyone who relies on their savings for income," she said.

"To see more banks raise their term deposit rates is fantastic for savers and hopefully it'll encourage more people to save."

The RBA cut the cash rate by 0.25 percentage points to a new record low of 1.5 per cent at Tuesday's board meeting, but home loan borrowers will miss out on a sizeable chunk of savings after the big four banks denied them the full benefit.

NAB will cut its standard variable rate for owner occupiers by 0.10 percentage points, ANZ by 0.12, Commonwealth Bank 0.13 and Westpac 0.14.

Had NAB and CBA slashed their 5.35 per cent standard variable rate by 0.25 percentage points, borrowers with an average home loan of $370,000 would have saved about $654 a year on repayments.

Instead, they will save only $262.56 and $341.16, respectively.

The Finance Brokers Association chief executive Peter White called the move bitterly disappointing and said the banks were being "scrooges" by protecting their net interest margins, a key profit figure, to please shareholders.

"They are not doing any borrowers in this country any favours," he told AAP.

"It looks like a purely protective measure for their shareholders."

Comparison website RateCity data insights director Peter Arnold said the banks have proved that shareholders are their priority.

He said it would pay for people to search for more competitive interest rates from other lenders.

"The good news for borrowers is that there's a home loan rate war going on and plenty of lenders will be passing on the cut in full," he said.

BIG FOUR OWNER-OCCUPIER RATE CUTS

* NAB: 0.10 percentage points to 5.25 per cent

* ANZ; 0.12 percentage points to 5.25 per cent

* CBA: 0.13 percentage points to 5.22 per cent

* Westpac: 0.14 percentage points to 5.29 per cent

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