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The Australian Bankers Association (ABA) has defended the major banks’ decision to hold all or most of the Reserve Bank’s latest interest rate cut.
The major banks have come under fire in recent weeks from the government and other parties for refusing to pass on the full April 25 basis point rate cut however the ABA says the current debate over bank margins and funding costs is missing much needed balance and accuracy.
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According to the banking industry body bank interest margins remained at extremely low levels by historical standards. Sources of funding – deposits, short-term and long-term, had all been very expensive, the ABA said, and were continually pressuring banks’ margins.
Deposit rates, for example, are at near-record highs, the ABA said, as intense competition has pushed deposit rates above the cash rate – in one case by as much as 200 basis points.
“It is essential for banks to be profitable and to maintain their high credit ratings otherwise their costs of funding will rise even more,” the ABA said.
