Aussie banks' rates higher in NZ

The big Australian-owned banks are charging New Zealanders more on floating-rate mortgages than their Australian customers despite that country's official cash rate being half a percentage point higher than ours.

While market commentators say this doesn't indicate local banks are gouging customers, they say it is time at least some of last week's official cash rate cut is passed on to borrowers, and warn that failure to do so may delay the economy's recovery from recession.

Last week's 50 basis point cut to the Reserve Bank's official cash rate (OCR) took it to 2.5 per cent. The Reserve Bank of Australia cut its equivalent rate by 25 basis points to 3 per cent early last month.

However, as of yesterday, the average standard variable mortgage rate charged by Australia's four major banks was 5.75 per cent, according to website interestrate.com.au.

The average rate across their NZ subsidiaries is 6.45 per cent. That means NZ variable rate borrowers are now paying 3.95 percentage points above the OCR against the 2.5 percentage point margin paid by their Australian counterparts.

"It doesn't look good," said Massey University head of banking studies David Tripe, "but I'm unconvinced that it is inherently a problem and I'm unconvinced that it means New Zealand borrowers are being ripped off".

Dr Tripe said while analysis of banks' funding costs across the two countries was difficult, the Australian economy was generally deemed to be less risky than NZ's, "so banks don't have to pay as much for funding".

An insider at one of the Australian-owned major banks with knowledge of its treasury operations supported that view. Securing overseas funding was cheaper for Australian banks because that country's wholesale funding guarantee carried the Government's AAA rating whereas the New Zealand version carried our Government's slightly lower AA+ rating, which meant local banks might pay up to half a percentage point more for money than their parent.

On domestic markets, the fee for the Australian guarantee was 0.2 percentage points lower than the New Zealand scheme.

Both the insider and Dr Tripe also made the point that NZ's retail deposit rates have not fallen in line with the OCR. This can be partly explained by the intense competition between local banks for retail term deposits, which are a key component of their funding.

A spokeswoman for ANZ National noted NZ retail deposit rates were generally higher than in Australia.

BNZ's Blair Vernon said his bank was continuing to review its variable rates. "The comparison into another market where there is a different funding mix and different products is always going to be difficult. The latest results from BNZ demonstrate that the net interest margin has been compressing over the last six months - and is reflective of the competitive pressure over the whole book."

ANZ National said the lending rates it charged in New Zealand were a function of what it paid for both retail and wholesale borrowings and its net interest margins were "generally similar between the two countries".

AMP Capital Investors head of fixed interest Grant Hassell said that while he recognised banks had lower funding costs in Australia than in NZ, local banks had "a degree of fat" in their fixed and floating rates that should be sacrificed and passed on to borrowers.

"I wouldn't be surprised if the Reserve Bank was talking to them about passing on some reduction right now."

Royal Bank of Canada currency strategist Sue Trinh said the lack of movement in mortgage rates since last week's OCR cut had implications not just for borrowers but also for the wider economy.

"The ultimate risk is the RBNZ's expected recovery in domestic demand is delayed and in that regard it's kind of concerning that a lot of the domestic banks have yet to really make any changes to their mortgage rates in light of the RBNZ's recent 50 basis point cut.

"The longer they leave it and the less pass-through of the official cash rate cut to mortgage rates there is, the more it will again weigh on the RBNZ's expected recovery forecast, which is pretty pessimistic as it is."