Bank profit margins are expected to get a further boost if the Reserve Bank lifts interest rates this week as widely forecast, but lenders also face growing political pressure over how much of the rate increases are being shared with savers.
Markets are pricing in another 0.25 percentage point rate rise this week to 3.35 per cent, which would be the ninth rate hike in a row, given the RBA board does not meet in January.
Banks’ deposit pricing is a key focus for regulators, and investors.Credit:Josh Robenstone
The aggressive tightening in rates has caused banks’ margins to widen sharply, as lenders have passed on the rate increase to standard variable mortgage rates in full, but passed on a smaller portion to savers.
However, after Treasurer Jim Chalmers last month flagged an Australian Competition and Consumer Commission (ACCC) probe into the deposit market, analysts said there would be political pressure on banks over their savings account rates. Analysts also say funding pressures are likely to push up deposit rates this year, irrespective of the ACCC inquiry.
Jarden analyst and chief economist Carlos Cacho said a 0.25 percentage point rate rise this week was “pretty much guaranteed,” and he believed banks’ margins would continue expanding in the early part of this year. “While I don’t think the ACCC inquiry will end up finding anything, it certainly ups the political pressure on banks over their deposit pricing,” Cacho said.
The government is expected to provide the ACCC with terms of reference for its inquiry into the deposit market imminently.
Figures from Canstar show the average base rate for savings accounts has risen by 1.82 percentage points since April, compared with the 3 percentage point increase in official rates. Bonus savers – which require customers to meet various conditions – have increased 2.75 percentage points, on average.
Canstar group executive Steve Mickenbecker said the more limited increases in savings rates probably did not amount to anti-competitive behaviour by banks, but the ACCC probe could create negative publicity for the sector.
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