Australian Banks interest rate margins expand
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With RBA interest rates now at 4.25%, the same rate that was in place in 2002 it is easier to make an assessment of the margins being charged by the Australian banks.
In 2002 the average standard variable interest rate offered by the big four banks was 6.07%. The current average standard variable rate is 6.82%, an increase of 0.75% from the levels of 2002.
The banks will put this down to the global financial crisis and while funding costs have indeed increased it also reflects an amount of margin creep.
It is estimated that about 90% of all lending is currently being done through the big banks while has heavily impacted the smaller lenders and the lack of funding options has rendered the smaller lenders to be unable to compete in the current environment.
Hence these small lenders have had to increase rates as they are unable to source funds as cheaply as the big banks. This has impaired the local lending market and once again given the banks the upper hand once again against the consumer.
Commonwealth shareholders have a week to forget
The Commonwealth Bank sank further during the week as the bank faltered behind it’s rivals and sank further down the pecking order through delayed activity.
The Commonwealth Bank fell by 14.2% to $28.15 over the week as it’s rivals got the jump on the bank seeking funding through bond and retail share offerings to boost their tier 1 capital ratio.
The Commonwealth Bank placed a $750 million placement to Merrill Lynch to redeem their PERL 2 securities in March 2009. The plan will increase the tier 1 capital to 7.8% from 7.5%.
The bank also announced a $500 million retail share purchase plan for shareholders that will be revealed in February.
The actions of the Commonwealth Bank have all been too brief and late for the market as it has lost valuable credibility in the market to the other leading Australian banks. The share purchase plan is still not likely to boost the tier one capital ratio to the levels of the other banks.
Big Australian banks create $2 billion car fund
The big Australian banks Commonwealth Bank, ANZ Bank, Westpac & the National Australia Bank will setup a special fund to provide financial support to the local car industry.
The domestic car financing market has been hit hard recently by the withdrawal of major car financiers including GE Money which has forced a number of businesses to consider bankruptcy.
The announcement by the treasurer Wayne Swan today revealed the $2 billion trust will provide liquidity to car dealers through securing eligible loans. The fund will commence on 1 January 2009 and will be secured by the government for 12 months.
St George cut variable rates by 0.85%
St George Bank today announced plans to cut their standard variable home loan by 0.85% to 6.89%, the rate change takes effect from 8 December 2008.
St George became the latest bank to fail to pass on the full 100 basis point cut made by the Reserve Bank yesterday. Only NAB and the Commonwealth Bank passed on the full rate cut, Westpac and ANZ passed on 0.80% and 0.83% respectively.
Commonwealth Bank and NAB pass on rates in full
The Commonwealth Bank and NAB have passed on the rate cut in full after the RBA rate cut today where the Reserve Bank cut rates by 100 basis points.
Both banks have benefited from banking inflows which have made the task of providing the full rate easier than their competitors the ANZ Bank and Westpac.
The Commonwealth Bank announced they will pass their rate cuts onto new and existing customers from 12 December 2008.
ANZ & Westpac drop rates by less than RBA cut
Both ANZ and Westpac have reduced their standard variable rate to 6.91% after ANZ announced a reduction of 0.83% and Westpac 0.80% as the RBA cut rates today by 1%.
The ANZ rate cut takes effect from 12 December.
Both banks failed to match the full cut by the Commonwealth Bank and National Australia Bank who announced earlier today a cut to their standard variable rates to 6.74%.
RBA cut by 100 basis points
The Reserve Bank of Australia today announced a cut to the RBA interest rate of 100 basis points to 4.25%.
The rate cut reduces the RBA rate to it’s lowest level since December 2001. The RBA Chief Glenn Stevens indicated that more cuts are likely but they are unlikely to be in the range of recent cuts more along the lines of the traditional rate cuts of 0,25% to 0.50%.
The Commonwealth Bank, National Australia Bank and Westpac all reacted swiftly by cutting rates. The full rate cut was passed on my the Commonwealth Bank and the National Australia Bank but Westpac only passed on 0.80%.
Commonwealth Bank error affects 200,000 customers
The Commonwealth Bank went into damage control yesterday after an error affected up toi 200,000 bank customers across Australia.
The banking error erased funds from bank accounts for customers who performed transactions between Saturday and Monday.
Steve Batten a Commonwealth Bank spokesman said the error occurred because transactions were being duplicated due to a batching issue.
Commonwealth Bank customers would not be charged interest or fees as a result of any error that may have caused the account to be overdrawn or other fees to be inadvertantly generated.
Could foreign Banks abandon Australian market?
The Australian has an excellent article today regarding the potential for foreign banks to abandon the local loan market with some $54 billion at risk from foreign banks retreating the local market.
The recent flood of equity raisings by a host of major companies including the National Australia Bank and Incitec have perhaps anticipated the move by offshore banks to retreat from the local market. Plus the actual cost to seek funds from the money markets have made equity a far superior option.
But accessing equity from sharemarket investors comes at considerable cost to the share price as existing shareholders are diluted and inevitably share prices fall.
It will be interesting to see how other major companies like the Commonwealth Bank and Wesfarmers proceed over coming months as they seek additional funding options.
Click to article name to read Local turmoil should offshore banks head home
Commonwealth Bank bad debts to hit $2 billion
The Commonwealth Bank’s bad debts could double from $930 million to around $2 billion after the bank has been caught up in a load of corporate failures that will negatively affect next year’s results.
Ralph Norris conceded the Commonwealth Bank had made some major mistakes and that conditions were the worst since the great depression.
Ralph Norris the CEO of Commonwealth Bank also revealed that at the annual general meeting that the bank had totally written off their exposure to ABC Learning that has cost them $440 million.