Rate cut won’t be passed on to business borrowers

Australia’s big banks appear certain to refuse to pass on yesterday’s 25-basis-point interest rate cut to business borrowers, despite heavy criticism from business leaders and Prime Minister Kevin Rudd.

The RBA’s decision to cut rates by 0.25% leaves the official cash rate at 3%. The RBA has now cut rates six times since the start of September, when the cash rate stood at 7.25%

While the big four banks – ANZ, Commonwealth Bank, National Australia Bank and Westpac – have been quick to pass on rate cuts to mortgage holders, business borrowers have largely missed out. Average business loans have only fallen by an average of 2.68% and overdrafts have fallen by an average of 2.41%.

Now the banks appear unlikely to pass on yesterday’s cut to any customers, including mortgage holders. NAB says it will not pass any of the rate cut on at all, while Commonwealth Bank is only passing on a cut of 10 basis points to mortgage customers.

Business borrowers are unlikely to get anything at all.

Jaye Radisich, chief executive of the Council of Small Business Organisations of Australia, is not impressed.

“I certainly welcomed the rate cut from the point of view that small business owners are mortgage owners too, and that should have helped boost their cash in the bank. But now we hear the cuts won’t even be passed on to mortgage holders.

“In the past 12 months or so, we’ve seen the RBA cut rates six times. Not only hasn’t it flowed on to business loan rates, but we’ve also seen rates increase for some loan holders.”

This morning, Radisich will attend the second meeting between members of the Australian Bankers’ Association and small business groups. Radisich says that at the first meeting held in early March, the banks agreed “to do everything in their power to pass on further rate cuts”.

“I’ll be asking them, what do you intend to do to assist small business? Will you be passing on these rate cuts, and if so, when?”

The banks have cited increased funding costs as the main reason for their refusal not to pass on rate cuts, but Radisich has no sympathy for this argument.

“That is particularly concerning in light of the fact that no commentator or banking boss has disputed the fact that banking profit margins are increasing, despite the recessionary environment.

“We are concerned banks are maintaining their margins at the expense of business borrowers.”