By Robb M. Stewart
MELBOURNE, Australia--Australia's government has ordered a probe of banks' mortgage pricing after major lenders did not pass on in full the central bank's latest round of cuts to the official cash rate.
Treasurer Josh Frydenberg said Monday he has called on the competition regulator to investigate the prices charged for residential home loans and barriers that may prevent Australians from switching lenders. He said the regulator should consider how banks make pricing decisions and examine differences between the prices paid by new and existing mortgage borrowers and between reference interest rates and rates paid by customers.
Major banks haven't cut variable mortgage rates as deeply as the Reserve Bank of Australia has reduced the cash rate this year, which has seen the benchmark rate reduced in three times by quarter-point increments to a record low 0.75%. Holding back some of the cuts, which the banks have argued has been necessary to counter high wholesale borrowing costs, has led to allegations by some lawmakers the lenders are ripping off borrowers.
"The Australian public...is sick and tired of the merry dance where the RBA has cut rates three times in recent months, the government and the RBA itself have called on the banks to pass them on and the banks have just ignored that advice," Mr. Frydenberg said in an interview with the Australian Broadcasting Corp.
Mr. Frydenberg said the four biggest banks control about 80% of the country's 2 trillion Australian dollar (US$1.36 trillion) residential mortgage market, and the regulator needs to "lift the hood and to get to the bottom of this issue."
The Australian Banking Association, an industry body, welcomed the probe as an opportunity to cast light on mortgage pricing and the factors that influence the setting of interest rates.
Shayne Elliott, chief executive of Australia & New Zealand Banking Group Ltd. (ANZ.AU), said the big banks haven't done a good job explaining the rate-setting process. "The inquiry is a good opportunity to provide facts in what is a complex space," he said.
With the central bank's latest cash-rate cut earlier this month, ANZ reduced variable home-loan rates by between 0.14 and 0.25 percentage point and said it had to also consider the needs of its business and role in stimulating the economy. Commonwealth Bank of Australia, the country's biggest mortgage lender, cut its standard variable rates 0.13-0.25 point and said that was a balance between the needs of borrowers and savings customers as well as shareholders who rely on its dividend.
The Australian Competition and Consumer Commission said it expects to produce an interim report for the government by the end of March and final report in September. The latest probe will build on its mortgage-products inquiry which in late-2018 concluded opaque pricing by the big banks had stifled competition, inflated borrowers' costs and impacted their willingness to shop around for new mortgages.
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