Australia & New Zealand Banking Group Ltd. (ANZ)’s decision to increase mortgage interest rates, citing higher funding costs, will anger its customers, Australian Treasurer Wayne Swan said today.
The lender, one of Australia’s so-called four pillar banks, yesterday raised it standard variable rate by 6 basis points, or 0.06 percentage point, to 7.42 percent, effective April 20. ANZ Bank Chief Executive Officer Mike Smith began a policy this year of announcing any changes to its mortgage rates on the second Friday of each month, to decouple his bank from the Reserve Bank of Australia’s monthly interest-rate cycle.
“ANZ’s decision to whack its customers at a time when many of them are doing it tough flies in the face of recent Reserve Bank (RBATCTR) statements saying funding costs for banks have eased,” Swan said in an e-mailed statement.
Smith is among Australian bank executives fighting to maintain earnings as demand for mortgages tumbles to the weakest level since 1977. Home-loan approvals fell for a second month in February on the fastest exodus of first-home buyers in a decade, increasing pressure on the central bank to cut interest rates as consumer confidence weakens.
The central bank kept its benchmark interest rate unchanged at 4.25 percent this month, with minutes of its March 6 meeting showing it considered the risks from Europe’s debt crisis had eased.
“The funding environment changed quite dramatically in late 2011 as a result of the economic and financial crisis in Europe,” Philip Chronican, ANZ’s chief executive officer of Australian operations, said in an e-mailed statement yesterday. “This has seen wholesale funding costs rise and competition increase dramatically among banks for deposits.”
RBA Governor Glenn Stevens signaled last week he may end a three-month pause in rate cuts as soon as next month if weaker- than-forecast growth slows inflation. The central bank lowered borrowing costs in November and December to buttress the housing market, support jobs and boost confidence among consumers who are saving more.
Australia unexpectedly posted back-to-back trade deficits in February as coal and metal exports slumped. The central bank is relying on A$456 billion ($473 billion) of resource projects to meet Chinese and Indian demand to drive economic growth and support employment.
The RBA has consistently made the wrong call on setting rates and should lower them, Paul Howes, national secretary of the Australian Workers Union, said April 11.
The Australian Chamber of Commerce and Industry on April 11 urged the RBA to cut rates by half a percentage point to arrest declining competitiveness and “break through” low business and consumer confidence.
ANZ’s move yesterday follows decisions by Australia’s other three biggest lenders -- Commonwealth Bank of Australia, National Australia Bank Ltd. (NAB) and Westpac Banking Corp. -- to raise variable mortgage rates by as much as 10 basis points in February, citing higher wholesale funding costs.
The decision by the four pillar banks, named for a law that prevents them from buying each other, to increase rates independently from the RBA has drawn criticism from the government.
“ANZ has become the unofficial rate movement setter for Australia’s mortgage market,” Damian Smith, chief executive of researcher RateCity, said in an e-mailed statement yesterday. “Now that ANZ has given other lenders the green light on lifting rates, we expect that other lenders, including the major banks, will follow their lead.”
The number of loans granted to build or buy houses and apartments fell 2.5 percent in February from a month earlier, the biggest drop since March 2011, according to the statistics bureau. The total value of loans dropped 1.3 percent to A$20.3 billion.
A private survey showed consumer confidence declined to an eight-month low as concerns mount among mortgage holders paying the highest borrowing costs across major developed nations.
The four pillar lenders reported an aggregate 8 percent increase in profit to A$12.1 billion for their latest six-month results from the same period a year earlier, according to the RBA. ANZ Bank in February announced plans to slash about 1,000 jobs by Sept. 30.
“There would be a lot of ANZ customers very upset about this decision to jack up rates, coming after their recent massive profit announcement and staff sackings,” Swan said today.
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