Not all lenders are equal when it comes to how they decide whether or not to pass on RBA rate cuts.
Whether a lender passes on a full rate cut is not the sole measure of its attitude to customers.
Jamie McPhee, ME Bank CEO, says a true measure of a lender’s attitude to customers only becomes clear when you look at three factors: the lender’s interest rate relative to others, the amount it passes on over the longer term, and the context of its overall profitability.
“The major banks have dropped their standard variable rates by less than 0.81% p.a. between November 2010 and November 2012, while other banks like ME Bank have decreased their rates by more in the same period, in ME Bank’s case by 0.91% p.a.
“Many lenders are also offering much lower rates than others. For example, ME Bank has always offered a lower standard variable rate than the Big Four and is currently 50 basis points lower than the lowest of the majors - NAB.”
McPhee adds that while the cost of funding argument that all banks are making at the moment is valid, the reasonableness of this argument should be judged on a case-by-case basis in the context of a bank’s overall profitability.
“When holding back rates due to the high costs of funding, is a bank preserving long-term viability or is it seeking to maintain unreasonable profits?” he asks. “We sympathise with customers who are angered by some banks holding back on rates while making annual profits of more than $5 billion and with returns on equity of up to 20 per cent, which is more than most other Australian companies.”