Every day counts a lot for both borrowers and Australian banks for each day that the latter fails to pass, whether in full or partially, the 25-basis points overnight cash rate reduction made by the Reserve Bank of Australia (RBA) on Tuesday, Dec. 4.
The Sydney Morning Herald, quoting JP Morgan analyst Scott Manning, estimated ANZ and Westpac would benefit the most from the delayed rate cut passing and earn for the two banks $2 million a day or $53 million in interest income since they would take at least two weeks to reduce interest rates.
It took three of the big 4 banks two days after the rate cut announcement to inform the public that they would pocket 5 basis points and pass on to consumers the 20 basis points rate cut.
However, Westpac's rate cut, which would bring down interest rate for standard variable loans to 6.51 per cent, would take effect only Dec 17, while the Commonwealth Bank of Australia and National Australia Bank rate cut would be effect Monday, Dec 10 and bring down their rates to 6.4 per cent and 6.38 per cent, respectively.
ANZ traditionally announces it interest rate decision on the second Friday of the month, in which case a Dec 14 announcement would likely result in the rate cut being implemented at the earliest on Dec 17, the announced effective date for the Westpac rate reduction.
While both banks would likely pass on the rate cuts after 13 days since the Australian central bank decision, Mr Manning estimated ANZ would only earn another $25 million, while Westpac would earn $28 million due to the higher standard variable rate of Westpac.
CBA and NAB will pass the rate cut a week earlier, but the two banks would still gain an extra $14 million and $11 million for the delay in passing the rate cut.
With the rate cut, Australia's key lending rate is now down to 3 per cent and equivalent to the rate in 2009, which was the height of the global financial crisis.
While the one- or two-week delay would benefit the banks and affect borrowers, the Australian Bankers' Association (ABA) said the banks' pocketing 5 basis points out of the 25 basis points rate reduction would not result in borrowers paying more for their mortgages and business loan.
Steven Munchenberg, chief executive of ABA, was quoted as saying in the Australian Business Economists Annual Conference Dinner of Wednesday that "Mortgage rates today are broadly where they would be, regardless of whether banks pass on rate cuts in full or not."
"The RBA has also confirmed that, recognising banks' funding costs have risen over the past few years relative to the RBA's cash rate, the RBA does not expect Australia's banks, credit unions and building societies to always pass on RBA rate cuts in full. There is a strong expectation in the community, reinforced by politicians, that banks should always follow the RBA, despite the RBA repeatedly stating that it does not expect banks to do this," Mr Munchenberg added.
Despite the banks' rising funding costs, a study by the Australian Institute said large Aussie banks are among the world's most concentrated in terms of ownership and most profitable per capita, earning $1,460 for every person in the country.
David Richardson, banking analyst of the institute, warned that the concentrated ownership could have negative consequences for consumers because it opens the door for banks to act in a monopolistic way.