PETER MARTIN ECONOMICS CORRESPONDENT

MORTGAGE holders can breathe a guarded sigh of relief after the first official rate rise of the year. Each of the lenders that has responded has passed on no more than the Reserve Bank’s 0.25 percentage point increase.

But each has also complained about ”cost pressures” and hinted it would not be able to continue to hold the line. 

Calculated on the average interest rate of the four major banks before yesterday’s increase.

After imposing an outsized increase of 0.37 of a percentage point increase when the Reserve last lifted rates in December, the Commonwealth Bank this time kept its increase to 0.25 of a percentage point but warned it ”continues to experience increases in wholesale funding costs”.

The ANZ, which pushed up rates 0.35 points last time , fell in line with the Reserve Bank but warned it was ”continuing to absorb additional funding costs” to balance ”very real commercial pressures with the interests of our customers and the broader community’s interest in the economic recovery”.

St George, owned by Westpac which in December led the pack with a 0.45 point increase, said it would only push up rates 0.25 points to take ”a responsible approach to managing interest rates and funding cost pressures”.

Even the National Australia Bank, which was the only one last time to hold its increase to 0.25 points, said this time it would need to examine the ”cost of providing funds” before deciding.

Within minutes of the Reserve’s announcement, the Treasurer, Wayne Swan, sent a message to the banks that there was ”absolutely no justification whatsoever for any increase over and above the official cash rate increase”.

”If we look at the net interest margins for the major banks, they have improved to pre-crisis levels,” he told a Parliament House press conference. ”I have made my views very clear about what Westpac did last time – it was not justified and they thoroughly deserved the backlash they subsequently suffered.”

The latest increases make ANZ the most expensive bank with a standard variable mortgage rate of 6.91 per cent, and NAB the cheapest with a rate of just 6.74 per cent if it does no more than pass on the official increase. If Westpac passes on the increase in full, it will lead the pack with a standard variable rate of 7.01 per cent, and be the first bank to push its mortgage rate above 7 per cent.

Mr Swan said rates were still at ”1970s lows”. ”I think families and businesses understand that rates can’t stay at emergency levels forever, although for someone with a mortgage, it’s tough stumping up an extra $50 a month.”

The governor of the Reserve Bank, Glenn Stevens, described the rise as ”a further step” in the process of returning rates to average levels now that economic growth was likely ”close to trend”.

He has previously stated he expects two to four such rises this year.

The increase will add about $47 to the monthly cost of servicing a $300,000 mortgage, and $63 to a $400,000 mortgage.

Meanwhile, the Bureau of Agricultural and Resource Economics has forecast a 15 per cent increase in mineral and agricultural commodity exports, reaping $186.8 billion in 2010-11.

The drive in commodities exports comes on the back of surging demand from China and India for iron ore and coal.

with Tom Arup

ANZ chief executive Mike Smith on the roof of company’s headquarters in Victoria. Picture: Jon Hargest Source: Herald Sun

ANZ has increased its underlying profit after tax for the four months to January by 16 per cent to $1.6 billion on higher earnings, wider margins and lower bad debts.

Income growth was about 8 per cent and cost growth was 7 per cent on further investment in the business, especially the institutional and Asian divisions, the bank said.

The company’s margins increased 14 basis points, excluding the markets division, compared with the second half of fiscal 2009.

ANZ chief executive Mike Smith said the outlook for Australia, New Zealand and Asia was now more positive than a year ago.

“The improved conditions are reflected in a more positive outlook for provisions,” Mr Smith said.

“There are, however, good reasons for caution about the outlook at this early stage of the year.

“We are already seeing a sovereign debt crisis in Europe and there is likely to be further volatility as the global financial crisis continues to work its way through the system.”

The provision charge for the full year was expected to be modestly higher than that implied by the four month total of $670 million. Fiscal year to date provisions were down 35 per cent on the prior year average.

ANZ, the Australian bank with the biggest presence in the Asia Pacific, said lending growth grew slightly, with increases in mortgages and credit cards offset by lower demand from corporate and institutional clients.

Deposits grew 2.5 per cent, driven by the increase in Australian retail and Asia Pacific institional deposits, offset by a decline in New Zealand.

“The Australian Retail and Commercial businesses are delivering good results. Asia Pacific Europe and Americas (APEA) is continuing to grow while a key focus in 2010 is integrating the business we acquired in Asia from RBS,” Mr Smith said.

“The New Zealand economy is stabilising, holding out the prospect of improved business performance over the next year or two.”

The bank said consumer asset quality was holding up well with the total provision coverage ratio remaining steady at 2.04 per cent.

ANZ said it had raised just over 60 per cent, or $15.2 billion, of its expected term funding requirements with an average maturity of five years.

The bank said funding costs remained high on a historical basis with the most significant increase coming from deposits.

The banks have been pushing up interest rates on deposit products to attract savings to fund lending.

ANZ said its pro forma Tier One ratio was 10.4 per cent with a core ratio of about 8.3 per cent, making the bank’s capital ratio the highest amongst the big four.

The integration of recent takeovers ING, RBS and Landmark were on track.

Mr Smith said global economic growth was likely to be slower now than in the decade leading up to the financial crisis.

“Despite recent steps to temper growth in China, Asia is expected to remain the world’s best performing region with growth of 7.7 per cent (excluding Japan) which confirms our confidence in the super regional strategy,” Mr Smith said.

ANZ is aiming to have 20 per cent of its earnings coming from Asia by 2012.

AAP

ERIC JOHNSTON

A MEETING of the AMP board this month mapped out the options for the wealth giant if, as widely expected, National Australia Bank emerged with AXA Asia Pacific.

One of these is a defence strategy aimed at ensuring AMP remains the so-called ”fifth pillar” of the nation’s financial services market, should a big-four bank begin circling.

The logical poison pill in any takeover attempt would be for AMP to try to turn the game on its head and make a play for a regional bank. Such a move would result in AMP becoming too large for a big-four bank to digest, both in terms of pricing and likely competition hurdles.

The aim of the banks over the past decade has been to diversify into wealth management, so it should not be too much of a stretch for a wealth manager to buy into a mid-sized bank.

Among the most obvious targets for AMP would be Bank of Queensland, given the regional lender’s willingness to enter into a partnership. And at the same time, a deal is affordable and its share registry is largely wide open.

Other candidates include the banking arm of Suncorp Metway, although its new chief executive, Patrick Snowball, has said he is keen to retain the business, which is largely focused on the Queensland market. Bendigo Bank, while attractive with a national footprint, is regarded as less likely, given cultural differences.

AMP is no stranger to lending and transaction accounts, having operated a small banking business for the past two decades. The chief executive of AMP, Craig Dunn, has talked up a greater strategic focus on its banking business to position itself a alternative to the big four lenders.

Of the eight non-executive directors on AMP’s board, three, including the chairman, Peter Mason, and director Paul Fegan, come from a banking background. When it comes to AMP, ANZ is widely regarded as being the best placed to make a takeover offer for the wealth giant.

Any deal would transform ANZ into a dominant player in the financial services market, but it would come at a cost.

On Axiome Equities calculations, ANZ would have to pay about $16.5 billion for AMP for the acquisition to be mildly dilutive, but this would mostly be financed by a monster $10 billion capital raising.