Banks may have right to keep some of the RBA rate cuts for themselves. Photo: Michael Mucci
Banks are facing higher funding costs since the global financial crisis, the Reserve Bank says, vindicating in part their decision not to pass on in full rate cuts by the central bank.
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In February, the central bank kept the cash rate at 4.25 per cent. Despite that decision, the four largest banks all increased their variable home loan rates, citing a higher cost of funds.
On Tuesday, the RBA announced its largest cut to the cash rate in two-and-a-half years, cutting it by half a percentage point.
In the days since, three of the big four - NAB, Westpac and Commonwealth - have cut their variable rates, and none has matched the RBA cut. The ANZ says it won't reveal its new rates until next Friday, May 11.
The big banks used higher costs as an excuse for taking a slice of the cash rate cut, and it seems to be true, according the central bank's view.
The funding costs for existing bank loans have increased by about 20 basis points since mid-2011, the RBA said in its Statement on Monetary Policy today.
"This partly reflects effects of ongoing competition for deposits," the RBA said.
The central bank's comments were contained in its latest quarterly statement on monetary policy, which cut the outlook for economic growth and inflation. The lower targets add to mounting evidence that the economy is growth slower than the government had predicted, making it even harder for Treasurer Wayne Swan to deliver a surplus in next week's federal budget.
Fitch ratings agency recently downgraded its long-term credit rating of three of the four big banks, citing the reliance on offshore wholesale funding.
Despite this, RBA data shows that the use of short-term debt by commercial banks to fund loans fell by a third to 20 per cent in 2012 from just above 30 per cent in 2008.
Meanwhile, domestic bank deposits, a more expensive source of funding, make up over 50 per cent of the funding for the banks loans, significantly higher than just below the 40-per-cent mark in 2008.