The CEO of a big four bank says the group’s decision not to pass on the full cash rate cut and instead lift deposit rates is part of a “complex formula” the lender must solve.
ANZ yesterday reported a cash profit of $5.2 billion for the nine months to 30 June, down 3 per cent on the prior corresponding period.
In a trading update the bank noted that its retail arm experienced “modest asset growth and margin pressure” in a competitive market for mortgages and deposits.
“Small business banking remains an area of good growth in both markets, while conditions in corporate and business banking remained highly competitive.”
Along with its big four peers, ANZ has come under fire in the last week over its decision to hold back 13 basis points of the RBA rate cut, passing on 12 basis points.
However, in an effort to offset the pain for mortgage holders and in a bid to attract deposits, the major bank lifted the rate for its one-year Advanced Notice Term Deposit by 60 basis points to 3 per cent, while it’s two-year TD increased 75 basis points to 3.2 per cent.
ANZ CEO Shayne Elliott said the balance between reducing home loan rates and increasing deposits was a “complex formula that we need to solve”.
“We have depositors on one side and we have borrowers on the other; and it’s interesting to note, we have five times as many depositors as we do borrowers,” Mr Elliott said.
“We need to get that balance right because without those really valuable deposits, we don’t have any money to lend out. I mean, we are essentially an intermediary and so we need to get that balance right and we need to be really competitive with depositors to make sure they keep money in the bank and don’t take it out into other investments,” he said.
Mr Elliott, who took over the top job from Mike Smith at the beginning of the year, said that the RBA cash rate is an important ingredient but not the only significant factor when ANZ sets pricing for deposits and borrowers.
“It’s important, we absolutely took it into account and that’s why we came to a balanced outcome of passing half of that rate cut onto our mortgage borrowers in particular and small business but also being able to afford to keep a little bit so we can afford to increase the rates that we pay for depositors.”