ANZ Ignore RBA & Increase Rate

ANZ today announced it will increase interest rates for variable rate mortgages and small business lending by 0.06%pa.

This is the first time the bank has moved to increase its rates independently of the RBA’s cash rate since it announced its split with the central bank’s pricing in December last year.

According to a statement from the bank, the decision follows ANZ’s monthly interest rate review which considered:

  • the intense pressure on retail and business margins in recent months being sustained following:
  • increased competition among banks for consumer and business deposits that has provided higher relative returns to ANZ’s 2.9 million deposit customers;
  • higher costs paid by ANZ for $8 billion in long-term wholesale funding raised since October 2011 as a result of the economic and financial crisis in Europe which has made money more expensive for all banks to borrow.
  • the stable monetary policy setting announced this week by the Reserve Bank of Australia following successive reductions in the cash rate in late 2011.
  • the competitive environment, the impact of higher rates on customers and on loan growth, and also the need to act in a considered way with growing pockets of weakness in the Australian economy.

Effective 17 February 2012, ANZ’s new standard variable mortgage rate will be 7.36%pa (7.46%pa comparison rate). New small business rates are effective from 17 February.

ANZ will also cut its three year fixed rate mortgage by 0.15% to 5.99%pa as part of its Breakfree banking package.

ANZ say this month they faced a serious dilemma in their review, balancing the rising cost of bank funding including deposit customers’ interests in receiving highly competitive rates, and the expectation of borrowers that we keep lending rates as low as possible.

In December and January the bank says it absorbed the additional funding costs in the hope that funding pressures would ease and that no change in lending rates would be necessary.

ANZ are still beating the drum that  margins in retail and business banking have now been squeezed for a number of months and they have taken the difficult decision to pass on part of the higher costs to customers.

The new monthly interest rate review process recognises that the Reserve Bank’s cash rate alone is not an accurate reflection of bank funding costs, particularly since the global financial crisis which has left all banks with the task of raising funds in volatile global markets and through stronger competition for deposits.

This change comes with a duty to explain to customers what drives the decisions and provide greater transparency about funding costs.

ANZ want to assure customers that they are committed to providing competitive products and we hope there will be an opportunity to lower rates in the coming months as greater confidence returns to global funding markets.

There has been much debate on banks in recent days,  ANZ will no doubt leave some customers frustrated and even angry.

Why they couldn’t just reduce the massive discounts on offer is a mystery. Clearly the profit is higher using this method. if you are a borrower it is a sad day if you are a shareholder things are looking up.


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