An Australian challenger bank says its decision to follow the majors in increasing mortgage rates will lift the ‘considerable pressure’ that capital requirements have had on margins.
Speaking to shareholders last week, Bendigo and Adelaide Bank chairman Robert Johansen explained the bank’s decision to increase variable mortgage rates. On 3 November the lender announced that it would raise its variable rates for both investors and owner-occupiers.
“These increases followed the increases announced by the major banks which were justified as being necessary to support the increased levels of capital they are now required to hold,” Mr Johansen said.
“Our interest margin has been under considerable pressure for a long time as a result of the additional capital we were required to hold and these increases will assist in addressing this pressure.”
Mr Johansen highlighted that banking in Australia has enjoyed a long period of high returns on capital being generated for shareholders. However, he noted that the bank expects these rates of return to reduce over time.
“This seems inevitable in an economy where the risk free rate is at all-time low levels, and where around the world returns on capital employed in banks are much lower than in Australia,” he said. “We do need Australian banks to be, as the Murray report found, unquestionably strong to ensure ready access to international capital markets.”
The regional bank chairman conceded that Bendigo and Adelaide Bank is “a price taker in most parts of its business” and will not look to win business by offering the cheapest borrowing rate or the highest deposit rate.
“We do offer competitive rates and our ability to do that is strengthened by the reduction in the competitive disadvantages that non-major banks have suffered,” he said.
“We know that all our stakeholders – depositors, borrowers, employees and capital providers – need to earn fair and competitive returns.”
Bendigo and Adelaide Bank’s net interest margin contracted by four basis points over the 2015 financial year.
The lender’s recent rate rises of up to 17 basis points become effective on Friday.