One of Australia's non-major banks has announced it will increase its variable mortgage rates.
Industry super fund-owned bank ME today announced it will increase interest rates by 20 basis points across its variable home loan portfolio, effective 20 November.
This will put the bank’s Flexible Home Loan variable reference interest rate at 5.08 per cent (comparison rate 5.09 per cent), positioning it 0.48 per cent to 0.60 per cent lower than the major banks.
ME also announced it has increased its headline Online Savings Account variable interest rate by 0.45 per cent to 3.55 per cent effective Wednesday 28 October.
This includes a 1.55 per cent variable bonus rate payable to eligible customers.
ME CEO Jamie McPhee said the bank had moved rates to provide a balance between offering competitive home loan rates to customers on the one hand, and delivering acceptable rates of return for its industry super fund shareholders and their members on the other.
“Up until the Financial System Inquiry recently addressed the unfair capital advantages of the larger banks, smaller banks like ME have been achieving below-market shareholder returns in order to remain competitive with the majors,” Mr McPhee said.
“Last Financial Year ME reported a return on equity of 7.4 per cent compared to the major banks’ average of 15.8 per cent,” he said.
“The rate increase we have announced today puts us on a path where we can continue to grow the bank, while offering some of the best home loan rates available for working Australians.
“In a period of record low interest rates, ME continues to offer lower rates than the majors as we have done for the last 10 years, giving everyday Australians a more affordable opportunity to own their own home.”
ME has a target return on equity of around 10 per cent, which will also be achieved through productivity gains enabled by its recent technology investment.
The bank said both revenue and cost pressures have also increased over the last 12 months due to regulatory changes around liquidity, greater economic uncertainty, and stronger competition in the owner-occupied market.