Today the RBA decided to leave the cash rate at 1.5%.
The cash rate has not moved since August 2016 yet the banks have repriced a number of their loans in Dec 16, March 17 and again in June 17. The three rate increases (most recent by 0.30% on interest only loans) will conservatively generate in excess of $150M in additional revenue annually for each bank.
We all, along with the federal government need to be asking why? It'd be good to generate some discussion.
aside from the common thought that that they are grabbing the opportunity my thought is that they are being pressured by apra and the RBA to incentivise people to reduce their household debt.
I also understand that the cost of capital raising overseas has increased which pushes up rates here.
the next point is that apra wants the banks to hold more Reserves as part of the new banking requirements and therefore they using the additional rate increases in order to do this.
so raising the interest only rateds solves all three issues for the banks.
Tend to agree with Richard, if you were asked (as a bank) by APRA to solve those two issues and your cost of funding had changed (although it's not definitive that it has, certainly not by this much, then this course of action is a neat solution to all 3.
The banks tend to be conservative in the pricing and lending policy compared to overseas equivalents, a reasonable part of the reason we didn't see as big of a downturn in the GFC here. IO is almost the one that slipped through, but APRA pressure and bank response should slowly wind back this lever.
Paul, a very good question. The increases are quite absurd, and while some funding cost increase may have occurred it would not be at this level.
The Banks appear concerned how they are going to pay the .0.6% levy recently introduced. I feel it is already well paid for.
The issue is one of meeting government introduced "speed limits" on both investment and interest only lending. ASIC have supposedly been given a mandate to monitor Bank rate changes, they should immediately force every lender to publicly state their position against the required speed limits and make this a part of the quarterly profit updates that Banks provide. At least by doing this it keeps consumers informed and provides a much more transparent view than what the Banks are currently announcing to there customers.
Banks are very reluctant to provide this information on a voluntary basis. The regulators need to be stronger against the banks, not just let this pass to the consumer.
Banks at the end of the day are businesses owned by shareholders who want the highest possible return on their investment.
As borrowers we may want to get loans at the lowest possible rates but as investors we want to have the highest possible profits for the banks. Their job is to balance the two out.
The banks are neither charities nor not for profit institutions and as long as there is demand for their funds, they will and should be able to charge interest rates determined by the power of supply and demand.