Trio Get Set To Outstrip Reserve

Sydney Morning Herald

Monday March 10, 2008

Danny John

THREE top-five banks are set to follow the lead of their rivals National Australia Bank and Westpac in lifting home loan interest costs above the 0.25 percentage point rates rise levied by the Reserve Bank.

ANZ, Commonwealth Bank and St George will almost certainly raise their rates over the next two days, with only the size of their increases splitting their respective positions in the mortgage market.

Having warned investors on Friday about the constant pressure the global credit crisis is putting on his bank's bottom line, ANZ's chief executive, Michael Smith, is likely to sanction a rise of about 0.35 percentage points, 10 basis points higher than the Reserve and five points above Westpac's new rate.

ANZ, which is likely to announce its new level tomorrow, has tended to adopt a tougher line in the past three months by going higher in a single hit when passing on increased borrowing costs.

This has contrasted with the tactics adopted by NAB and Commonwealth, which sought to hold their January increases at about 10 basis points but were forced to top up the Reserve's sanctioned rise last month.

Commonwealth is believed to have learnt from that experience, and may even go slightly higher than Westpac's 0.3 percentage point rise unveiled on Friday.

Coupled with NAB's new 0.29 percentage point rise, the average standard variable mortgage rate now stands at 9.27 per cent. But ANZ and St George could go above that.

Both Mr Smith and St George's chief executive, Paul Fegan, have warned that the banks' costs of borrowing show no sign of abating. In the case of St George, a 0.4 percentage point rise is needed to bridge the gap.

All the banks have come under pressure on the sharemarket, having seen their share prices slump as the liquidity crisis has squeezed their margins through higher pricing and growing liabilities, also caused by the higher cost of debt.

Mr Smith said on Friday that the fallout would continue to affect the price of loans to the consumer and business sectors, with price rationing of debt now a real possibility.

"Certainly I believe the increase we pass on will have to strike a balance between the additional increase in funding costs and what we pass on to customers and what we absorb ourselves," he said.

Analysts at Macquarie Group have indicated that rises of about 40 basis points would be the "best outcome" for the banks. Rises of 50 basis points would ease their margin pressures but result in a sharp fall in home loan growth, said Macquarie Research.

© 2008 Sydney Morning Herald

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