Last Thursday's 25 basis points cut in the Official Cash Rate by the Reserve Bank has led to an unexpected response by banks.
Some of them have cut their term deposit and savings account rates already.
But some of them have not passed on all the rate cut to their floating rate borrowers.
This holdback has surprised many.
And it has annoyed the regulator (Reserve Bank) and opposition politicians. And now the government is starting to sound annoyed.
In fact, one bank - BNZ - has not cut its floating rates for borrowers at all yet.
Will it?
BNZ, like others, just say their rates are "always under review".
Delay, and discounting the benefits of a rate cut to customers seems to be a new banking tactic.
One way to understand the attractiveness of these delays and holdbacks is to work out how much money is involved.
There is $215 billion of housing loans outstanding as at the end of January, according to Reserve Bank data.
23.5% of this is on floating terms, or $51 billion.
The latest disclosure statements from the main five banks are our primary source of how we cost these holdbacks. That data is older and less than the Reserve Bank data, but it remains a useful benchmark.
The bottom line is that every day banks don't pass on the rate cut, they retain $327,000 of additional margin. Each week that is more than $2.2 million.
Some banks have passed through all the OCR benefit to their customer (like the Co-operative Bank), some most of it (like ASB and Kiwibank who retained 5 basis points), while others kept most of the OCR reduction (like ANZ and Westpac).
Then there are still others who haven't announced any decision (like BNZ). Theoretically they could keep it all.
The attraction is strong.
This table sets out an estimate of how much each bank gains from these hold-backs.
| Institution | Total mortgage lending |
portion that is floating |
Daily value of 0.25% interest |
|
| NZ$ bln | NZ$ bln | NZ$ | ||
| estm | approx | |||
| ANZ | 68.7 | Sep-15 | 16.1 | 110,500 |
| ASB | 45.6 | Dec-15 | 10.7 | 73,400 |
| BNZ | 32.4 | Sep-15 | 7.6 | 52,200 |
| Kiwibank | 13.9 | Sep-15 | 3.3 | 22,300 |
| Westpac | 42.5 | Sep-15 | 10.0 | 68,500 |
| ------------ | ----------- | |||
| Total main banks | $203.2 | $327,000 |
These banks have announced a wide range of pass-throughs of the OCR cuts to borrowers. After they are in place, here is the left-over portions they will be retaining for themselves.
| Amount of OCR Cut held back |
Date effective |
Value of holdback per day |
|
| NZ$ | |||
| ANZ | 0.15% | March 29, 2016 | 66,300 |
| ASB | 0.05% | March 24, 2016 | 14,700 |
| BNZ | 0.25%* | * no announcement yet | 52,200 |
| Kiwibank | 0.05% | March 24, 2016 | 4,500 |
| Westpac | 0.15% | March 29, 2016 | 41,100 |
| ----------- | |||
| Total main banks | $ 178,700 | ||
| Annual gain | $62.2 mln |
(Also see Gareth Vaughan argues banks not passing on the full 25 basis points OCR cut is not justified).
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