ANZ raises mortgage rate, but scraps exit fees

SYDNEY: Australia and New Zealand Banking Group (ANZ) joined a major rival on Wednesday, Nov 10 in pushing its mortgage rate well above the central bank's cash rate, but sought to deflect a political backlash by scrapping loan-exit fees.

Australia's four major banks are bracing for government reforms aimed at boosting competition in the sector, as most of them continue to outpace the central bank's monetary tightening in an effort to offset their rising cost of wholesale funds.

"The intense competition for deposits and high wholesale funding costs is very real and has continued to increase the average cost of lending," ANZ said in a statement.

The abolition of mortgage exit fees, which can amount up to about A$900 (RM2,792.05), is expected to be mandated by the government anyway, as part of reforms designed to boost bank competition and enable customers to switch between lenders at no extra cost.

ANZ, the fourth-largest Australian lender, said its basic mortgage rate would rise by 39 basis points to 7.80% from Monday, compared with last week's 25 basis point rise in the central bank's cash rate to 4.75%.

Last week, bigger rival Commonwealth Bank of Australia raised its mortgage rate by 45 basis points, bringing an immediate reaction from the government which called it a "cash grab" and promised to unveil banking reforms next month.

Such hefty rises by the big four commercial banks, which account for more than 80% of the home-loan market, are expected to slow the central bank's own rate rises.

The Reserve Bank of Australia (RBA) targets average lending rates in the economy as opposed to just the official cash rate.

Top lender National Australia Bank and No 3 Westpac Banking Corp are still to react to last week's RBA hike.

Australian banks, which rely on offshore debt markets for a quarter of their annual funding needs, have complained of rising funding costs hurting net-interest margins, though the local lenders' margins still well exceed most of their global peers.

Costs are rising as local banks refinance cheap offshore debt raised before the global financial crisis.

ANZ has managed to protect and grow its margins thanks to its Asia focus and the US$13 billion (RM40.31 billion) in deposits the region gives it.

ANZ shares ended 0.2% lower at A$23.70 compared to the 0.86% fall for the benchmark. — Reuters