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National Australia Bank (NAB) has confirmed that it would not be lifting its mortgage rates out of cycle, despite funding cost pressures prompting the three remaining big four banks [Westpac, Commonwealth Bank (CBA) and ANZ] to increase their rates by 14, 15 and 16 basis points, respectively.
According to NAB CEO Andrew Thorburn, the bank has decided to keep its home loan rates on hold to rebuild customer trust.
“We are listening and acting differently. We need to rebuild the trust of our customers, and by holding our NAB standard variable rate longer, we help our customers for longer,” Mr Thorburn said.
“By focusing more on our customers, we build trust and advocacy, and this creates a more sustainable business.”
However, Mr Thorburn added that NAB would continue to regularly review its rates and monitor market conditions, including the continued rise in funding costs.
“We are not immune to market and funding conditions, and there has been some pressure there, but this decision, this message is squarely focused on our customers, and thanking them for their business — particularly home loan customers who have been with us for some time,” Mr Thorburn added.
“The longer we can hold this rate, the greater the benefit for them. In the end, our bank is based on our customers and how they feel about us, and the trust that they have in us.
“I think we are focused on serving them better and I think this is a step in that direction.”
Following NAB’s announcement, Prime Minister Scott Morrison took to Twitter to applaud the bank’s decision.
In a post, Mr Morrison said: “Good call by NAB, not to lift mortgage rates; they seem to get it.”
In contrast, following Westpac’s decision to increases its home loan rates out of cycle, Mr Morrison encouraged its customers to switch banks.
“People in Australia and their customers I think are doing it tough,” Mr Morrison said.
“They [Westpac] have to justify in this environment, when people are really feeling it, why they believe they need to clip that ticket a little harder.”
The Prime Minister added: “If you don’t like what Westpac’s done, go to another bank.”
Research director at comparison website RateCity Sally Tindall also welcomed NAB’S decision, claiming that its move could lure more customers to the bank.
“NAB has heard the complaints from the government, regulators and, most importantly, their customers, and has acted,” Ms Tindall said.
“It’s great to see a bank putting its customers ahead of its profit margins.
“[The] move benefits almost one million NAB customers and potentially even more if people choose to switch to NAB.”
Bank hikes a “credit positive”: Moody’s
However, according to Moody’s Investor Service, Westpac, ANZ and CBA’s interest rate increases are “credit positive” because they “underline the strong pricing power of the banks, which is a key factor supporting their profitability”.
When asked how Moody’s views NAB’s decision to keep rates on hold, senior analyst Daniel Yu told Mortgage Business: “Our message is that irrespective of which banks have raised rates, we believe the Australian banking sector has retained pricing power which is a key support to their long-term profitability.”
Further, in its report, Moody’s noted that it does not expect the rate hikes to result in a “significant increase in loan delinquencies or credit costs”, citing “favourable” labour market conditions and “solid economic growth forecasts”.
However, Mr Yu added: “We are not saying that there will not be a rise in arrears — at the margin, there will always be some borrowers that will be impacted. However, our expectation is that the higher rates will not result in a significant rise in arrears.”
[Related: More majors pull interest rate trigger]