Small lenders find some benefit in retaining the interest
Marc Moncrief, The Age, 9th of May 2006
SMALL lenders are waiting to pass on last week's interest rate rise to their customers in a move that will increase competitive pressure on the big banks and may also influence the Reserve Bank towards another rate rise.
After the RBA increased the cash rate of interest to 5.75 per cent last week, the Big Four - National Australia Bank, Commonwealth Bank, ANZ and Westpac - all increased their variable loan rates by a quarter percentage point. But some smaller lenders are yet to announce rate increases.
Some building societies and non-bank lenders, including Liberty Financial, have not yet raised their variable rate mortgages. Yesterday, Sir Richard Branson's Virgin Home Loans said it would not pass on the rise until January.
While lenders who have not yet passed on the rise represent a small proportion of total loans, competition from small lenders has brought about a slow price war that has whittled margins - the percentage of each loan that lenders take as profit.
Last week, BBY analyst John Buonaccorsi told The Age that if the rise was not passed on, the RBA might "think the transfer mechanism is broken", and raise rates again.
When contacted yesterday, Mr Buonaccorsi said one of the larger lenders would have to react to create sufficient pressure to influence the RBA.
"The last thing you would want is for the banks to wear it," Mr Buonaccorsi said. "It means that they are less safe and consumers won't pull back. They (the RBA) want the rise to be transmitted through."
Tolhurst Noall analyst George Galanopolos agreed that small lenders were unlikely to destabilise the market, but the move showed that higher rates would not dampen competition in lending.
"It just highlights that the competitive landscape remains intense (and) that will just put continued pressure on margins," he said.
