Lucky I didn’t promise to eat my hat. I said in my last post that I had no doubt the RBA would cut by only 25 points, and they were more aggressive than I gave them credit for. I’m very happy to have been proved wrong.
I would still love to see someone come out strongly and pass on the full cut to home borrowers, but I think the chances are pretty slim when we are talking about 0.5%. It would take a lender to believe that such a move would pay for itself in new business volumes and increased retention. That kind of argument rarely gets much traction inside a bank, especially when new loan volumes are down and existing big bank customers have themselves convinced that it’s too hard to switch away.
And, sadly, when it is much easier to believe that customers will take the pain – because not enough people switch – and that their competitors will play along.
Yesterday, NAB gave us a very clear sign of the banking herd mentality. NAB was the first major to the cut rates this week, and yet they have promised to have the lowest of the big four standard variable rates for all of 2012. They knew that if Commonwealth Bank passed on 42 points or ANZ 43, then this would no longer be true. But NAB was pretty confident that neither of those was going to happen, and hence they were able to make a pricing decision that sees them undercut the other three before the other three had even made their announcements. It’s the Bill Shorten effect (“I don’t know what the PM said, but I agree with her”), in banking.
And of course, this morning the Commonwealth Bank confirmed their assumption by passing on 40 basis points.
NAB may have demonstrated a different attitude towards its customers when it comes to exit fees and penalty fees, and they were the first to deal with the issues of credit card reform. But when it comes to variable home loans rates, the breakup now only goes so far. And perhaps when it comes to interest rates in general, given the fact that they have cut rates on savings accounts by the full 0.50%, and the rates on most credit cards by only 0.25%. They are still part of the oligopoly.
Andrew Duncanson is the Research & Insights Director at Mozo.