News

Banks to break ranks in interest rate rebellion

Sat January 28, 2012 5:03am

WESTPAC and Bendigo Bank may soon announce they will set interest rates independently of RBA movements as the industry desperately attempts to limit public pressure to pass on rate cuts.

If they do change policies, Westpac - the nation's No. 1 home lender with nearly $290 billion in loans - and eighth-ranked Bendigo ($22 billion) would be following No. 4 ANZ ($160 billion), which last month said it would review interest rates monthly, without regard to the actions of the Reserve Bank.

After years of moving their variable rates in line with the RBA, banks now want to dismantle community perceptions that there is a link between the official "cash rate" and their variable rates, The Daily Telegraph reported.

A banking analyst said Westpac was facing a dilemma.

"It has now reached the point where Westpac executives are privately pulling their hair out, considering they just raised $3 billion in a bond sale but at rates more than 1.5 percentage points above what banks in fact lend to each other," the analyst said.

A Bank of America Merrill Lynch index showed the margin banks were willing to pay had more than doubled over the past 12 months -- simply to get money in the door.

Last night a Westpac spokesman said he had "no comment to make about our plans" despite last month declaring it had "no intentions of changing the way we set interest rates".

However, Bendigo and Adelaide Bank boss Mike Hirst was more forthcoming, saying his bank would "absolutely" look to follow ANZ.

"It's something we think we'll do this year," he said.

"We need to break the psychological nexus the public have where they think what the Reserve Bank does is tied to what our funding costs are.

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