Wednesday, April 08, 2009

NAB alone

I see it as an attempt at 'solidarity', 'signalling', cartel-behaviour that went wrong (as such attempts often do)

THE NATIONAL Australia Bank is isolated as the only major bank defying the government and refusing to pass on any of the latest official interest rate cut as the Treasurer increases pressure on it accusing it of endangering economic recovery.

The ANZ, Westpac and St George yesterday fell into line with the Commonwealth Bank which Tuesday agreed to pass on 0.10 points of the Reserve Bank's 0.25 point cut. Westpac also undertook to pass on the full 0.25 points to its business and credit card customers.

Smaller lenders including the Heritage Building Society and and the agribusiness lender Rabobank passed on the 0.25 point cut in full.

Taking to the radio Mr Swan said NAB's approach was "not helpful when we’re trying to get everyone in the community working together to deal with the global crisis".

Finance Minister Lindsay Tanner opened up the possibility of withdrawing privileges from NAB saying there were "potentially other things we can do, but there are also downsides to those things"...

He and the Treasurer would apply pressure to the bank in private, "but we are not going to do it in public".

Opposition leader Malcolm Turnbull said the Mr Swan should consider threatening to remove the NAB's government guarantee.

"I would it wouldn’t have to come to that but the fact is that the banks have had unprecedented support from the Government. They benefit from a deposit guarantee, they benefit from a wholesale term funding guarantee, and despite all of that assistance they don’t seem to pay much attention to the Prime Minister," he said.

"Mr Rudd and Mr Swan have leverage. They should be sitting down with the banks and ensuring that the banks do their part in return; or at least acknowledge the considerable assistance they’ve been given by the government.

Mr Swan ruled out threatening to withdraw the guarantees saying that would "rebound not just on the banks but on the Australian economy."

NAB defended itself late yersterday putting out a statement saying that "between September and February NAB passed on more of the Reserve Bank's cuts than any of our major competitors".

But the accompanying table showed that that wasn't true for cuts from September to the present with the Commonwealth Bank cutting deeper than NAB and offering rates 10 points lower:

The difference amounts to $18 a month on a $300,000 mortgage.

The consumers organisation Choice blasted each of big banks that had failed to pass on the cut in full saying the only reason the Reserve Bank cut rates was so that the banks would pass the cut on.

"But it's very hard to shop around, and hardly worth it for 10 points when the rates might change again soon," said spokesman Christopher Zinn.

"This is really the birds coming home to roost. The government allowed the big banks to take over mid-tier banks such as St George and BankWest. Now there's very little competition".

Figures released separately yesterday showed that banks accounted for a record 92.4 per cent of new mortgages taken out in February.

"This is the highest market share ever recorded by the banks," said Coalition housing spokesman Scott Morrison. "At a time when people are asking why banks are not passing on rate cuts it is worth noting that the level of competition in home lending has also reached its lowest level on record."

The number of new housing loans climbed again in February for the fifth straight month since the government announced a boost to the First Home Owners grant.

A record 16 per cent of the new loans were for first home buyers.

Consumer confidence also improved in what Westpac economist Bill Evans said was most probably "a further positive response to the fiscal stimulus package".

"Media coverage of the imminent cash payments is likely having the desired impact," he said.

Reserve Bank board member Warwick McKibbin identified consumer confidence as the key to determining whether or not Australia slipped into a recession.

"You get a massive wiping out of your economy if in fact your consumers stop spending," Professor McKibbin told the Lowy Institute.

Unemployment figures due out today have the potential to hit confidence with economists expecting job losses in March and a further rise in the unemployment rate. The Employment Department's leading index released yesterday fell for the 16th consecutive month.

Standard Variable interest rates as per publicly available information - 3:30 pm Wednesday April 8.

The cuts so far

Commonwealth Bank - 3.94 points to 5.64%
National Australia - 3.87 points to 5.74%
ANZ Bank - 3.81 points to 5.81%
Westpac - 3.80 points to 5.81%

Standard variable mortgage rates, cuts since September

Source: NAB