Adelaide Bank fails to pass on full RBA rate cut

Likewise, interest on the Variable SmartSaver (LVR less than 90 per cent) will fall to 3.94 per cent and for those with LVR greater than 90 per cent, it will come to 4.39 per cent. The Variable SmartDoc will come down to 5.15 per cent, and the Variable SmartDoc Plus to 5.29 per cent.

Adelaide Bank’s general manager Damian Percy explained that the 0.1 per cent rate reduction means that customers on a residential variable interest rate with a $400,000 loan could see their repayments decrease by $25 a month (principal and interest home loan over 30 years).

The bank joins the growing list of big banks that have held back a substantial portion of the RBA’s 25 basis point rate cut, with Mr Percy saying that Adelaide Bank’s reduction “aims to find a fair balance for all of [the bank’s] key stakeholders”.

“The fact is, with interest rates at record low levels, banks are now unable to reduce all deposit product rates. Many depositors are already receiving zero or very low rates of interest and it is simply not possible — or, in many, cases fair — to reduce their rates further,” he said.

“When setting interest rates we need to consider many factors and carefully take into account the needs of our stakeholders, including borrowers and depositors, shareholders, staff, partners, and the broader community.

“We believe we are striking a fair balance and the changes we have made to loans and deposits following the two official cash rate reductions this year aim to deliver a neutral impact on our margin.”

Mr Percy acontinued by saying that although the reduction in mortgage rates is “great news for home owners paying down debt”, he sympathised with the “significant number” of people who rely on income from their deposits who will “continue to be challenged by this decrease.” 

Bendigo and Adelaide Bank have also only passed on 10 basis points of the RBA’s 25 basis point cut to mortgage customers.

Earlier this week the non-major released its full year results, reporting positive home loan growth over the 2016 financial year but noting that record-low rates are beginning to squeeze its margins.

According to the results, the bank had underlying cash earnings of $439.3 million over the 12 months to 30 June, a 1.6 per cent increase on the prior corresponding period. The bank grew its mortgage book by 4 per cent to $39.8 million over the year.

In a trading update, the non-major noted that last week’s RBA rate cut will have an impact on the profitability of its home lending: “August price changes aim to deliver neutral margin outcome following recent cash rate reductions.” 

The results also show that the lender has actively pursued the broker channel in recent months, while lending growth via mortgage managers was relatively flat (0.5 per cent) over the six months to 30 June.

[Related: Six lenders pass on full rate cut]