Weak loan growth and expectations of a cut in official interest rates have triggered a sharp fall in banks' funding costs, sparking debate over the prospect of "out-of-cycle" mortgage rate cuts.
The decline, in the graph below, has caught the eye of bank analysts and credit market experts, given that lenders blamed these pressures for a round of variable rate hikes in August and September last year.If sustained, the trend is likely to boost banks' profit margins, which have been under pressure as lenders try to woo customers with discounted rates.
Several major banks have already cut fixed mortgage rates in recent weeks, but there is speculation the trend may also cause banks to cut their variable rates, which are paid by most borrowers. "There is not the same level of demand for short-term funding or long-term funding. The reason there is less of that is because lending growth is slowing," Mr Bayley said.
Bell Potter analyst TS Lim also said the banks would "probably not" pass on the lower funding costs to their mortgage customers. He said margins remained pressured by clients rolling over from interest-only loans to loans with principal and interest payments.half-yearly bank profits from ANZ, Westpac, and National Australia Bank over the next week
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