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Sixteen non-major banks have raised their interest rates in the last few months, likely setting the stage for the majors to follow suit, according to a new report from Moody’s Investors Service.
The uptick in rates, mainly in variable-rate home loan products, has to do with the increased cost of wholesale funding and slower loan growth, the agency said.
In June, BOQ retail banking head Anthony Rose said funding costs had significantly risen since February. While the bank had absorbed the costs for some time, it would now be forced to raise rates to offset the cost, he said.
With smaller lenders like BOQ making the first move on headline home loan rates, they have demonstrated their dominance in the market at the moment, but that doesn’t mean the majors will hold back for much longer, Moody’s said.
The majors’ hesitation, however, likely has to do with concerns around how a rate rise would be perceived and the impact on already bruised reputations following the royal commission.
“We see smaller lenders' willingness and ability to increase rates as credit-positive evidence that they retain pricing power independent of the current challenges confronting the major banks,” said Moody’s analyst Tanya Tang and Patrick Winsbury in the report.
As loan growth slows, competition for prime borrowers has become fierce. Even while the non-major banks’ rates may be better, the majors are able to offer higher discounts and other perks.
According to Canstar, at least 10 institutions have made rate changes to their home loan products in the last week with a total of 58 product level changes recorded.
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