2019-11-12 09:39:091970-01-01 00:00:00

Big Banks Defy Treasurer Frydenberg

In anticipation of the Reserve Bank of Australia’s (RBA) move to cut the official cash rate, ANZ reduced its term deposit rates by up to 25 basis points the same day it passed on 18 basis points cut in variable mortgage rates.

Prior to the cut, ANZ slashed seven of its term deposit rates by 25 basis points including 15 basis points cut for 60-month term deposits, and 25 basis points cut for one- and three-month term deposits. The bank blamed the reduced rates on the falling money market bond yields. This rate cut was already decided earlier, and the effective date had coincided with the official cash rate cut.

RBA’s cash rate cut

Governor Lowe acknowledged that many Australians, particularly those that rely on savings income, would be “disappointed with the outcome”. However, speaking for the greater good of the country, the central bank believed the lower interest rates would “help the economy as a whole” and would be “best for the overall economy.”

Following the announcement from the RBA, Governor Philip Lowe expected the banks to pass on the 25 basis points cut to the mortgage loan rates. While ANZ was the first of the big banks to update its home loan rates, the bank reduced the rates by 0.18%, failing to pass on the full rate cut. Treasurer Josh Frydenberg criticised “the banks were putting profits before people” following the Royal Commission and that “actions like this don’t give the Australian people any comfort that the banks have changed their behaviour.”

It was 2016 when the RBA had last reduced the interest rate. At that time, the federal bank announced a 25 basis points drop in the cash rate. All the big banks did not pass the rate cut in full and as a result, the big four banks pocketed over $3.5 billion in revenue.

The implication of a rate cut

ANZ Group Executive, Australia Retail & Commercial, Mark Hand considered “a number of factors, such as business performance, market conditions and the impact on our customers, including our depositors.” The decision was made to “balance the increased cost of managing our business with our desire to provide customers with the most competitive lending and deposit rates possible”.

However, the timing of the move raised concerns over the bank’s financial prospect. An analyst said the RBA’s recommendation to pass on the 25 basis points cut would increase pressure on net interest margins and return on equity for the banks. Thus, the decision to withhold 7 basis points indicated the “cost of managing ANZ’s business in Australia.”

Backfired plan

The expense of failing to cut 0.25% in mortgage rates will result in market share losses. ANZ attempted to attract savers and retirees who rely on interest income by increasing its 11-month term deposit rate to 2.35%, an 80 basis point increase. The decision came after the bank announced a reduction on mortgage loan rates. Mr Hand said the decision was to “get the balance right to provide a highly competitive rate for savers.” However, ANZ’s attempt may be futile, considering the bank had previously slashed several of its term deposit rates in the past week.

Many have speculated that ANZ already had decided to pass on 18 basis points and the bank’s immediate response to the RBA cuts was to signal its struggling position to other banks and hopefully, for other banks to follow suit. However, the leader of the big banks by market capitalisation, CBA, had clear intention to meet the RBA’s expectation by passing on the full rate cut.

As the dominant bank, CBA is able to absorb the negative impact of a 25 basis points cut. NAB showed no resistance and followed CBA’s lead to pass on the rate cut. While Westpac retained 5 basis points in its standard variable rate, it offered a bonus 35 basis point cut for customers with interest-only repayments. Regardless, both banks were criticised by Treasurer Frydenberg and Governor Lowe. Governor Lowe encouraged customers to “shop around” and “look for a better deal somewhere else.”

In relation to the reputation, banks have been among the worst performers, receiving 35,000 complaints in six months and 5,900 complaints a month. ANZ had received 1,400 complaints since the Australian Financial Complaints Authority (AFCA) was established in late 2018. Despite ANZ having the smallest number of customers compared to other big banks, it attracted the largest number of complaints. While ANZ has about 8 million customers, NAB has around 9 million customers and received around 550 complaints. In light of this, customers will consider switching banks.

Pessimistic economy

In the wake of the international trade disputes and the banking misconduct scrutiny, the ever-mounting pressure on the Australian banks will squeeze every last drop of profit they have left. However, only the resilient banks will be able to survive through the current crisis.

By Jack Lee

Click here for a 7 days access to our Lotus Blue Portal.

KOSEC does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information provided. KOSEC is intended to provide general information only. Please be aware that investing involves the risk of capital loss. This message is confidential and may be privileged. It is intended only for the use of the addressee named above. If you are not the intended recipient, any unauthorised dissemination, distribution or copying is illegal. We do not guarantee the security or completeness of information hereby transmitted and are not liable in either respect or in respect of any delay. Nothing in this message is intended as an offer or solicitation for the purchase or sale of any financial instrument. Any market prices or data, unless specifically verified and identified as such, are not warranted as to completeness or accuracy. Kodari Securities Pty Ltd (KOSEC) is a Corporate Authorised Representative (No. 399 556) of Longhou Capital Markets (AFSL No. 292464) which is regulated by the Australian Securities and Investment Commission (ASIC). KOSEC wishes to disclose that KOSEC and its staff may hold stock they recommend in their own portfolios and that any decision to purchase recommended stock should be done so after the purchaser has made their own inquires as to the suitability to their own requirements. Click here to view our FSG.

KOSEC Terms & Conditions

Kodari Securities Pty Ltd (CAR 399556) trading as KOSEC is regulated by the Australian Securities and Investment Commission (ASIC). KOSEC is a financial services company and any information provided by its platforms, portals, reports and documents is protected by copyright. Any unauthorised production of this information is prohibited.
KOSEC reserves the right to change or remove any information provided on our website, reports or any documents including these terms and conditions at any time without notice. The change or modification to the terms and conditions will be effective immediately upon posting an updated version on our website, necessary platforms and documents. It is recommended that you review the information provided on our website, including these terms and conditions frequently for any changes.

KOSEC provides general advice only. The information provided is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. KOSEC recommends that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances. Please make sure you read our Financial Services Guide (FSG).

KOSEC does not guarantee any returns. Past performance of any product discussed is not indicative of future performance. (We urge that caution should be exercised in assessing past performance. All financial products are subject to market forces and unpredictable events that may adversely affect their future performance). Investing in the stock market can incur huge losses. Please also be aware that fees will incur on every transaction regardless of the performance of your investments or returns generated. Employees and or associates of KOSEC may hold one or more of the stocks, securities or investments reviewed by the company.

Your use of information from our website, reports, documents and from talking to our representatives/associates is at your risk. Under no circumstance should the investment be based solely on KOSEC information and general advice. You should seek professional financial planning advice.
KOSEC aims to maintain the accuracy of the data and information provided on this website, by using information prepared from a wide variety of sources, which KOSEC to the best of its knowledge and belief, considers accurate and does not make any representations or warranties of any kind, expressed or implied, about the completeness, accuracy, reliability, suitability or availability of the information provided.

We may at times refer to third parties, which the details of these third parties have been provided solely for you to obtain further information about other relevant products and entities in the market. KOSEC has no control over the information third parties have, or the products or services offered, and therefore make no representations regarding the accuracy or suitability of such information, products or services. You are advised to make your own enquiries in relation to third parties. Our inclusion of any third party content is not an endorsement of that content or the third party.

As a client you will be charged a yearly service fee and a set brokerage fee per transaction. Your service fee will automatically renew at the end of your agreed 12 month period at the same rate advertised at the time. Your credit card or bank account will be charged for a further year following which will again auto renew until you cancel your yearly service fee. You can cancel the auto renewal at any time in advance of the renewal date by contacting us. KOSEC is aware of the need to ensure the security of your credit card details and our payment systems are compliant with the Payment Card Industry (PCI) Data Security Standard.

You consent to receiving email correspondence from KOSEC, as well as companies KOSEC has an association with. These emails will be sent by KOSEC and third party companies. You can opt out of receiving any category of emails at any time by contacting us. We may from time to time inform you of special offers, or even ask your opinion of the services we provide, but your involvement is optional. Should you request us to do so, we will archive your details.

Indemnity and Liability
You indemnify KOSEC from all claims or threatened claims, suits, demands, damages, costs as well as including legal costs incurred in dealing with any threatened claim, expenses made by any person or corporation against KOSEC and any other amounts which is caused by KOSEC providing information, execution and General Advice.

You hold KOSEC harmless and release it from any liability in respect of any loss, harm or damage arising from a decision made by you on the basis of information obtained through the use of our portal, reports, documents or any General Advice given and any transaction taken place.

You hold KOSEC harmless and release it from any liability in respect of any loss, harm or damage arising from delays in executing orders for the client and acknowledges KOSEC makes no guarantees about the time taken to execute an order on behalf of the client. You acknowledge that KOSEC relies on third parties in providing technology and release KOSEC from any harm, loss or damage you may suffer as a result of the failure of such information technology.

Cookies and Links
KOSEC website, and its portal uses cookies, which lets us identify your browser while you are using the site or our portal. Cookies do not identify you personally. They simply allow us to track your usage patterns. If you prefer not to receive cookies, you can configure your browser to reject them or to notify you when they are being used. The functionality of the KOSEC website may be impacted if you restrict the use of cookies.

Fill up the form below and we will get back to you as soon as possible.



KOSEC’s CEO, Michael Kodari’s new book, “Stock Market Success” valued at $39.95, available at Dymocks book stores with all the proceeds going to Dymocks Children’s Charities.


Latest TV Commercial