WHEN this big bank hiked its mortgage interest rates yesterday, it blamed the higher costs passed on by global markets.
But there’s just one problem — it’s not entirely true. The money they’ll now rake in from raising interest rates for home owners is double what they actually need.
They said it was an unfortunate but necessary decision made to recoup their wholesale funding costs, which have risen recently.
Or put simply, what they pay to get cash to give to Australians taking out mortgages has gotten more expensive.
But leading banking analyst Jonathan Mott from the firm UBS said in advisory the hike by ANZ “passes through more than the additional wholesale funding costs to existing customers”.
If the cost of borrowing remained at current levels, Mr Mott said ANZ would cop a pre-tax bill of about 50 million. But after its rate rise, the bank stands to haul in double that — about 00 million pre-tax.
“This additional repricing is likely to offset the revenue impacts from the large discounts currently being offered to attract new customers,” Mr Mott said in the statement.
So, they’re making back their extra expenses plus a profit, while getting back the cost of discounts they’ve offered to entice customers.
The rate rise by Commonwealth Bank “more closely matches” its increased funding costs, he said, but they had also recently cut savings account deposit interest rates by 30 basis points, providing a boost to revenue.
The increases by three of the country’s Big Four banks has sparked anger, given their recently reported multibillion-dollar profits, huge CEO salaries and bonuses, and a stream of damaging revelations from the Royal Commission.
Treasurer Josh Frydenberg said customers were right to feel confused about the timing of the increases.
“My view is it’s up to the banks to explain to the Australian people why they lifted rates,” Mr Frydenberg said.
“Any financial institutional which makes these decisions needs to explain to its customers why.”
ANZ recorded a full year profit of .9 billion in 2016-17, and a first-half profit of .3 billion — up 14 per cent — in 2017-18.
The bank’s chief executive officer Shayne Elliott was paid .63 million.
In a statement, ANZ group executive Fred Ohlsson conceded the decision was based in part on “business performance” — or profit margin.
“This was a difficult decision given we know the impact rising interest rates have on family budgets,” Mr Ohlsson said.
“The reality is it is more expensive for us to fund our home loans on wholesale markets and we also needed to balance the needs of all stakeholders.”
Mr Mott said the hikes were “not without costs” in the short to mid-term, given political scrutiny from both major parties in recent times, as well as the Australian Competition and Consumer Commission (ACCC).
“We continue to believe there is a risk the Government or the Opposition may look to raise the Bank Levy,” he said.
And the rate rise decisions by the banks could lead to instability in the housing market, he warned.
“These rate rises provide another headwind to an already challenged housing market — (combined with the) royal commission, tighter underwriting, negative gearing, capital gains tax (and customers) switching from (interest only) to (principal and interest loans).”
ANZ yesterday said its increase would not apply to home loan customers in drought-declared regions, benefiting 70,000 people.
The change means a customer with a 00,000 loan from CommBank will pay an extra 7 a month, or 47 a year. An ANZ customer with the same loan will pay an extra 0 a month, or 76 a year.
RateCity.com.au research director Sally Tindall said the news was “predictable”, with the banks knowing they could “shoulder the backlash together” by hiking on the same day. “While Australia’s big banks might move like a flock of sheep, it doesn’t mean their customers have to,” she said.
When approached by news.com.au, ANZ declined to comment.