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Eyes on rival banks after Westpac lifts mortgage rates

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Westpac’s major rivals may not rush to follow the lender’s move to raise mortgage rates, with regulators’ glare and the threat of an increased bank levy keeping them on hold, according to one leading analyst.

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Westpac plans to raise variable home loan rates by 0.14 percentage points from September 19, due to increased wholesale funding costs.

That caused the Australian dollar to drop on speculation Commonwealth Bank, National Australia Bank and ANZ would follow suit, forcing the Reserve Bank of Australia to offset rises by cutting a cash rate that has stood at a record low 1.5 per cent since 2016.

But UBS analyst Jonathan Mott says the contraction in Westpac’s net interest margin has been greater than that experienced by its rivals because it pursued growth more aggressively up until June.

Mott says they are not under the same pressure to raise rates, while the consumer watchdog’s brief to ensure lenders do not pass on the cost of the federal government’s bank levy could also help keep them in check.

“While the banks generally follow each other in out-of-cycle repricing, we would not be surprised to see the other banks hold off for a few weeks/months as they are not facing the same NIM pressure as WBC and are aware of the ongoing focus from the ACCC,” Mott wrote in a note released on Thursday.

“This would also enable the other majors to regain some share.”

A spike in the funding costs had prompted several analysts to predict mortgage rate hikes by banks earlier this year but, faced with public anger over a series of malpractices, the country’s major banks had refrained from passing on the cost.

Mott noted that the ongoing royal commission, which has publicly flagged poor behaviour by big banks, and previous criticism from Scott Morrison prior to his becoming prime minister will also put pressure on other lenders not to raise rates.

“If the major banks all reprice their mortgage books one response from the government may be to increase the bank levy,” Mott wrote.

“In the UK, the bank levy was increased on nine occasions.”

Westpac on Wednesday said its variable mortgage rate for owner-occupier properties will increase to 5.38 per cent per annum for customers with principal and interest repayments, while the rate for residential investment properties will go up to 5.93 per cent.

Shares in Westpac were 0.45 per cent lower at 1200 AEST, making them the worst performing of the big four banks.

CBA was the next worst performer with a 0.17 per cent decline.

– AAP

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