Pressure is mounting on the banks to pass on to customers savings from the thawing in wholesale funding markets, with retailers and mortgage brokers seizing on revelations the banks are raising money at the cheapest rates in years.
Ahead of what will be a closely watched Reserve Bank meeting next week, the banks last month tapped three-year unsecured debt markets at about 70 basis points above the swap rate -- the key benchmark for pricing longer-term debt -- compared with 190 basis points in June last year and the October 2011 peak of more than 240 basis points.
Retailers latched on to the revelations, reported by The Australian, demanding the banks lower lending rates for their consumer and business borrowers, and urging the RBA to cut official rates 50 basis points to 2.5 per cent because of Australia's "inflated" rates compared with other countries.
"They could afford it well before June last year, but the big banks can definitely now afford to pass on savings to their customers; well beyond and independently of any interest rate cut," Australian Retailers Association executive director Russell Zimmerman said.
While the RBA is expected to hold fire next week, economists at Goldman Sachs and JPMorgan yesterday said the central bank would still cut rates further this year, potentially setting up a fresh battle between the banks and both sides of government in an election year.
The banks this week said their overall cost of funds remained unchanged and elevated, largely driven by the high cost paid for deposits -- 60 per cent of their funding -- and because long-term debt takes time to flow through and is replacing cheap pre-crisis funding.
CLSA analyst Brian Johnson said the banks' aggregate funding costs were "still rising" and lenders might preserve net interest margins by holding back some of a rate cut by the RBA, as the banks have repeatedly done.
But UBS analyst Jonathan Mott said while the mortgage repricing and "substantial" reduction in funding costs had made mortgages more attractive to the banks, they were unlikely to exploit the conditions, suggesting borrowers might see some respite should the competition for deposits ease.
"We expect 2013 to be an intensely political year, where it's unlikely to be in the banks' interest to be rapidly expanding mortgage margins," he said, after data showed annual home lending growth sliding to 4.5 per cent, the lowest level in 36 years.
Andrew Russell, general manager product and distribution at mortgage broker Mortgage Choice, which has 390 franchised stores, said the banks should pass on the easing in wholesale funding markets to boost activity and consumer confidence.
"We haven't seen it as yet, but . . . where the customer has had to wear the pain when the funding costs went up, we would like to see them enjoying the benefits as funding markets ease," he said. "The banks have the power in their hands here because they're at the top of the value chain."
