Bank educates borrowers amid ‘community angst’ over rates

The head of a regional bank has used the group’s AGM to explain why changes in the official cash rate have little to do with the pricing of home loans.

Bendigo and Adelaide Bank managing director Mike Hirst yesterday told shareholders that the bank is well aware of “some community angst with regard to banks”.

“There can be no hiding the fact that there have been some examples of poor behaviour in the industry,” Mr Hirst said.

After slamming calls for a royal commission into the banks as “a significant waste of taxpayer and shareholder money”, the regional bank boss said much of the community angst arises when banks fail to pass on changes in the official cash rate to mortgage holders.

“Hopefully, Australians understand there is no direct link between changes in the cash rate and what happens to rates on loans and deposits despite some recent, opportunistic commentary to the contrary,” he said.

“It is a complex issue but even a simplistic understanding of why banks price as they do will go some way to easing the angst.”

Mr Hirst explained that banks do not fund all their loans at the official cash rate, but from many different sources at lots of different rates including business and consumer transaction accounts, term deposits, issuing short- and long-term paper in wholesale markets and through securitisation.

“Given interest rates are at record low levels, some of these funding sources are already at rates so low they can’t be repriced further downward. This impacts the rates banks set on loans they provide for mortgages and businesses,” he said.

Fellow non-major lender Auswide Bank recently launched its first ‘rate tracker’ mortgage in response to the growing demand from customers to see their mortgage rates move in line with the RBA cash rate.

Speaking to Mortgage Business after launching the RBA Rate Tracker Home Loan, which shifts interest rates up or down in accordance with the Reserve Bank’s cash rate, Auswide’s managing director Martin Barrett said, “I think this will help improve customer relationships with banks and also with the relationship that brokers have with existing customers as well.”

“It must be frustrating when [brokers] put customers into any financial institution for a home loan and then interest rates move out of cycle or they don’t get the full rate cut when the RBA reduces rate,” Mr Barrett said.

“It must be quite difficult, if a customer has the perception that rates should reduce by the same amount, for brokers to explain why they haven’t.

“This is a product that provides a level of transparency around it. So when brokers are having discussions with their clients and helping [them] make a decision regarding what the most appropriate product [is] for them, if this is a product that they believe is most appropriate for their client, then I’m sure they’ll look to try and match them to that particular product.”

Mr Barrett warned, however, that the product “won’t be for everyone”, because “just as quickly as the rates can move down, they can move up as well”.

[Related: Tracker mortgages 'should not be mandated']

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