2019-10-22 09:36:251970-01-01 00:00:00

Big Banks Defy Treasurer Frydenberg

The Reserve Bank of Australia (RBA) has reduced the cash rate to a historical low of 1.25% – 25 basis points lower than the previous rate. Prior to the announcement, Treasurer Josh Frydenberg had strongly signalled the banks to pass on the rate cut fully to variable mortgage rates.

“I expect all banks to pass on the benefits of sustained reductions in funding costs,” Treasurer Frydenberg said. During Governor Lowe’s speech for the rate cut, he stated that the “reduction in the cash rate should be fully passed through to variable mortgage rates.”

However, while ANZ was the first of the big banks to update its loan rates, they did not reduce their variable home loan rates by the full 0.25%. Similarly, Westpac followed behind by passing only 0.2% for owner occupier customers, but reduced 0.35% for investor customers. The rest of the big four banks, CBA and NAB, agreed to transfer the full benefit of the rate cut to its customers.

In response to ANZ’s decision, Treasurer Frydenberg was “very disappointed” and that “the ANZ has let down its customers.” For Westpac, the Treasurer acknowledged “Westpac’s decision to spread the benefit of the rate cut among its different customers, ultimately it is up to Westpac itself to explain to its owner-occupier customers why they didn’t get the full benefit.”

Governor Lowe’s rationale for the rate cut

During Governor Lowe’s speech for the rate cut, he ‘broke’ his usual practice by providing a clear answer, which had always been, “it all depends”. His rationale behind the decision was the “recent reductions in banking funding costs”, which is a result of the change in monetary policy.

While the Governor acknowledged that the “savers”, predominantly the older Australians, would be “disappointed with the outcome of today’s meeting”, he believed that the rate cut would be the best for the overall economy.

The RBA believed the benefit to the Australian economy derives largely from two streams; lower Australian dollar and higher disposable income. They expected these changes would “lead to more jobs, lower unemployment and a stronger economy”, even though there will be people who “are felt unevenly across the community” in the short-term.

Banks’ response to the historically low rate

Following the RBA’s decision for a rate cut, ANZ Group Executive Mark Hand said the 0.18% reduction in all variable interest rates was announced from “a number of factors, such as business performance, market conditions and the impact on our customers, including our depositors.” He highlighted the need to “balance the increased cost of managing our business with our desire to provide customers with competitive lending and deposit rates.”

ANZ CEO Shayne Elliot defended their decision to pass only part of the rate cut and rejected the accusation of putting profits before people. Considering that there are “more depositors at ANZ than there are borrowers,” Mr Elliot emphasized the importance of balancing the interests of all stakeholders, including retirees and pensioners. He stood by his decision and believed it was the “best” they could do.

In ANZ’s statement, all variable interest rates for Australian home and residential investment loans were reduced by 0.18%. Standard variable rate for owner occupiers paying principal and interest fell to 5.18% per annum, from 5.36%. For owner-occupiers paying interest only, the index rate was reduced to 5.73% per year, from 5.91%. The new rates will become effective from 14 June.

Following ANZ’s announcement, CBA was the second bank to reduce its interest rate on home loans by 0.25% per annum. Group Executive Angus Sullivan said the bank had “carefully considered the RBA rate decision and the current funding environment, together with how we continue to meet our regulatory commitments, capital requirements, and community expectations.” The reduction on the standard variable home loan rate would reduce monthly repayment amount by $62 a month, based on a $400,000 mortgage.

NAB believed “reducing rates is the right thing to do” and followed the RBA’s decision to cut interest rates by 0.25%. Chief Customer Officer Mike Baird said the decision will put the bank’s standard variable rate at the lowest for more than 40 years. From 14 June, the updated mortgage variable rates will become effective.

Westpac was the last bank to reduce its mortgage interest rate. It was also the first bank to introduce a range of rate cuts for home loan customers. This included a 0.2% cut for owner occupier customers and 0.35% cut for investor customers with interest-only payments. In a period where official interest rate has been historically low, Westpac Chief Executive David Lindberg said the bank’s decision will create “opportunity for home-owners to get ahead on their repayments.”

Further rate cut possible

The bank’s defiance against the politicians had created pressure on the financial institutions. This pressure would increase as the federal bank foreshadowed at further rate cuts this year if economic conditions do not improve. The banks’ decision will directly affect their customers. Therefore, it is important to consider all the options to minimize conflict of interest among its stakeholders.

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