Co-operative Bank says hoarding of OCR cut by rivals 'not justified'

Friday, 11 March 2016

BNZ has confirmed it is not immediately passing on any of the OCR cut to its customers.

The only bank to pass on the full Reserve Bank interest rate cut says his rivals' decision to use it to boost margins is 'not justified'.

Reserve Bank governor Graeme Wheeler caught markets off guard on Thursday by lowering the official cash rate by 25 points to 2.25 per cent on Thursday, an all time low.

Bruce McLachlan, chief executive of the Co-operative Bank, says banks can afford to pass on a lower OCR to floating rate mortgage customers.

However the major banks have not passed on the savings to customers.

While the Wellington-based Co-operative Bank - a relative minnow, immediately passed on the entire cut in in its floating mortgage rate - ANZ and Westpac passed only 10 of the 25 points.

Reserve Bank Governor Graeme Wheeler told MPs he expected banks to pass on the full OCR cuts, at least on floating rate mortgages.

* Reserve Bank drops OCR to 2.25 per cent but banks may keep some for themselves**

Just before midday on Friday state-owned Kiwibank lowered its floating rate mortgage by 20 points, as well as cutting its three, four and five year fixed-rate mortgages.

BNZ has confirmed that in the mean time at least, it plans to keep the entire OCR cut to itself.

'We don't have any changes to announce at this stage but we are constantly reviewing interest rates,' Craig Herbison, BNZ's director of retail and marketing said in a statement.

'There are a range of factors that impact if a bank increases or decreases its interest rates. The OCR is one of them. Equally, one other consideration is the rising cost of wholesale funds due to a more volatile off shore market.'

ASB is yet to announce whether they will pass on any savings to customers.

Bruce McLachlan, chief executive of the Co-operative bank said he believed his larger rivals should be passing on the savings.

'I don't think it's justified to not pass on the whole amount. We're all operating in the same market. We believe we've done the right thing by our customers and our business,' McLachlan said.

'Yes, we know margins in banking have come down in recent times, but let's be honest, the industry's going to make about $5 billion in profits this year…It's not like the industry can argue that there's not sufficient returns. There are.

'Floating rate mortgages are one of the more profitable parts of banking. The floating rate margins have not been part of the problem, so I don't see why floating rate mortgage customers should be paying for the consequences of other decisions that banks are making.'

McLachlan said it was clear from the Reserve Bank's comments that it expected the saving to be passed on.

'I just don't think there's a case for withholding the benefit from customers.'

ANZ, the first of the major banks to pass on part of the lower OCR, said until this week 'unlike some other banks' it had passed on the full impact.

'But international volatility has proved to be more than temporary so these extra costs now need to be reflected in our lending rates,' an ANZ spokesman said.

A spokeswoman for Westpac said the 10 point cut 'reflects elevated funding costs due to financial market volatility since the middle of 2014'.