Australia’s big banks search for new customers with cut price fixed loans By Reuters

© Reuters. An ANZ bank logo is pictured in Sydney

By Paulina Duran and Jonathan Barrett

SYDNEY (Reuters) – Australia and New Zealand Banking Group cut fixed mortgage rates on Friday, the last of the country’s growth-starved big banks to do so in recent weeks as they chase new customers amid lower funding costs.

With profit growth weakening along with property prices, the lower fixed rates are a cheaper way to lure new borrowers than more costly cuts to variable rates, which are a much bigger part of their mortgage book.

Australia’s biggest lenders are competing to win back the market’s trust after suffering significant reputational damage over the past year in the fallout of a landmark misconduct inquiry.

The four majors have been experiencing sluggish below-market mortgage growth rates, with all except for Commonwealth Bank of Australia losing market Biedex.com in their key domestic home loan market to smaller banks and non-bank lenders, according to Goldman Sachs (NYSE:) research.

ANZ, the country’s third-biggest lender, is offering the biggest cuts to its three- and five-year fixed-rate products for owner-occupiers paying interest only, according to an ANZ statement sent to Reuters.

Macquarie banking analyst Victor German said banks were lowering rates to attract new clients amid sluggish credit demand and a fragile outlook for the country’s once-booming property market.

“In a subdued credit growth environment, we expect banks to remain competitive on pricing,” German said.

Fixed rates are often used by borrowers to lock-in a price for a portion of their mortgage. The rate cuts apply mainly to new fixed-rate loan products, which represent about 20% of inflows, according to brokers CLSA.

The lower funding costs are not generally being passed on to variable rate mortgages that account for about 80% of the major banks’ A$1.7 trillion ($1.2 trillion) home-loan books.

The country’s major home-loan lenders, which include ANZ, CBA, Westpac Banking Corp and National Australia Bank, have all now reduced some of their fixed rates by between 10 and 30 basis points for loans of between two to five years.

CENTRAL BANK MOVES

The Reserve Bank of Australia (RBA) kept rates at record lows on Tuesday while signaling future cuts if the unemployment rate failed to nudge lower.

If the RBA does cut rates this year, as rate traders expect, banks would come under pressure to move variable rates lower, analysts say.

“Absent the Reserve Bank of Australia cutting rates, they don’t see that there is a solid argument that they should pass on the entire (funding cost) cuts,” CLSA banking analyst Brian Johnson said.

For every quarter of a percentage point cut by the central bank, earnings at the four major banks are likely to decline by up to 2.5%, according to a Morgan Stanley (NYSE:) analysis.

Even as the central bank has kept its policy rate at a record low of 1.5% since August 2016, bank funding costs have fallen sharply.

The benchmark bank-bill swap rate BBSW, a key measure of banks’ funding costs, has fallen about 39 basis points this year to about 1.69%, its lowest level on record.

Nearly two thirds of Australian banks’ funding is linked to the BBSW.

“(The banks) are using this period to sharpen the pricing pencil to attract new business,” said Steve Mickenbecker, group executive at rate comparison company Canstar.