| Australia's banks have protected their margins by not passing on all of the last round of cuts to official interest rates, especially to business customers, central bank research shows. The Reserve Bank of Australia (RBA) paper published on Thursday, shows the banks' domestic average net interest margin (NIM) - a main indicator of bank profitability - has risen recently, offsetting falls that occurred in the early stages of the global financial crisis. "The major banks' NIM currently averages 2.27 per cent, which is a little above the level before the onset of the financial market turbulence in mid-2007," the paper contained in the RBA's monthly bulletin said. In the 10 years prior to the crisis, the average NIM on the banks' Australian operations tended to decline by around 10 basis points (or 0.10 percentage points) a year. This was partly due to tighter spreads on some loan products. But it was also the result of shifts in the composition of the banks' assets toward lower-margin products, like housing loans, and increased use of capital markets for funding. Since 2004, the rate of margin decline has slowed, and now the banks are enjoying fatter margins. Before reaching the current average, the banks' NIM for their Australian operations had risen by nine basis points in the half year to March 2009, after rising by five basis point rise in the half year to September 2008. The market anxiety caused by the onset of the financial crisis that erupted in mid-2007 meant borrowers had to pay bigger margins above official benchmarks to reflect higher perceived risks related to credit quality, duration of loans and market liquidity. As a result, the banks failed to pass on all of the RBA's official cash interest rate cuts since September 2008 to customers as they tried to offset the higher cost of borrowing new funds in wholesales debt markets. "The recent financial turbulence means that, while the cash rate remains a key influence on banks' funding costs, the costs of the various forms of banks' funding have not fallen as much as the cash rate due to an increase in term premia and credit and liquidity spreads," the report said. Since the RBA started easing monetary policy in September, its target for the overnight cash rate has fallen by 425 basis points to three per cent, from 7.25 per cent. In any case, by not passing on all of the official cuts banks have restored their margins, and it has been businesses - particularly small businesses - rather than households that have been most affected. "Banks have cut variable housing loan rates more than the fall in their cost of funds, but reductions in business lending rates have been less," the paper said. "Overall, banks' net interest margins have risen a little recently, offsetting the fall that occurred in the early part of the financial crisis."Read more HERE |
Monday, June 22, 2009
Banks have protected profit margins
Banks have protected profit margins
| Australia's banks have protected their margins by not passing on all of the last round of cuts to official interest rates, especially to business customers, central bank research shows. The Reserve Bank of Australia (RBA) paper published on Thursday, shows the banks' domestic average net interest margin (NIM) - a main indicator of bank profitability - has risen recently, offsetting falls that occurred in the early stages of the global financial crisis. "The major banks' NIM currently averages 2.27 per cent, which is a little above the level before the onset of the financial market turbulence in mid-2007," the paper contained in the RBA's monthly bulletin said. In the 10 years prior to the crisis, the average NIM on the banks' Australian operations tended to decline by around 10 basis points (or 0.10 percentage points) a year. This was partly due to tighter spreads on some loan products. But it was also the result of shifts in the composition of the banks' assets toward lower-margin products, like housing loans, and increased use of capital markets for funding. Since 2004, the rate of margin decline has slowed, and now the banks are enjoying fatter margins. Before reaching the current average, the banks' NIM for their Australian operations had risen by nine basis points in the half year to March 2009, after rising by five basis point rise in the half year to September 2008. The market anxiety caused by the onset of the financial crisis that erupted in mid-2007 meant borrowers had to pay bigger margins above official benchmarks to reflect higher perceived risks related to credit quality, duration of loans and market liquidity. As a result, the banks failed to pass on all of the RBA's official cash interest rate cuts since September 2008 to customers as they tried to offset the higher cost of borrowing new funds in wholesales debt markets. "The recent financial turbulence means that, while the cash rate remains a key influence on banks' funding costs, the costs of the various forms of banks' funding have not fallen as much as the cash rate due to an increase in term premia and credit and liquidity spreads," the report said. Since the RBA started easing monetary policy in September, its target for the overnight cash rate has fallen by 425 basis points to three per cent, from 7.25 per cent. In any case, by not passing on all of the official cuts banks have restored their margins, and it has been businesses - particularly small businesses - rather than households that have been most affected. "Banks have cut variable housing loan rates more than the fall in their cost of funds, but reductions in business lending rates have been less," the paper said. "Overall, banks' net interest margins have risen a little recently, offsetting the fall that occurred in the early part of the financial crisis." |
Banks have protected profit margins
| Australia's banks have protected their margins by not passing on all of the last round of cuts to official interest rates, especially to business customers, central bank research shows. The Reserve Bank of Australia (RBA) paper published on Thursday, shows the banks' domestic average net interest margin (NIM) - a main indicator of bank profitability - has risen recently, offsetting falls that occurred in the early stages of the global financial crisis. "The major banks' NIM currently averages 2.27 per cent, which is a little above the level before the onset of the financial market turbulence in mid-2007," the paper contained in the RBA's monthly bulletin said. In the 10 years prior to the crisis, the average NIM on the banks' Australian operations tended to decline by around 10 basis points (or 0.10 percentage points) a year. This was partly due to tighter spreads on some loan products. But it was also the result of shifts in the composition of the banks' assets toward lower-margin products, like housing loans, and increased use of capital markets for funding. Since 2004, the rate of margin decline has slowed, and now the banks are enjoying fatter margins. Before reaching the current average, the banks' NIM for their Australian operations had risen by nine basis points in the half year to March 2009, after rising by five basis point rise in the half year to September 2008. The market anxiety caused by the onset of the financial crisis that erupted in mid-2007 meant borrowers had to pay bigger margins above official benchmarks to reflect higher perceived risks related to credit quality, duration of loans and market liquidity. As a result, the banks failed to pass on all of the RBA's official cash interest rate cuts since September 2008 to customers as they tried to offset the higher cost of borrowing new funds in wholesales debt markets. "The recent financial turbulence means that, while the cash rate remains a key influence on banks' funding costs, the costs of the various forms of banks' funding have not fallen as much as the cash rate due to an increase in term premia and credit and liquidity spreads," the report said. Since the RBA started easing monetary policy in September, its target for the overnight cash rate has fallen by 425 basis points to three per cent, from 7.25 per cent. In any case, by not passing on all of the official cuts banks have restored their margins, and it has been businesses - particularly small businesses - rather than households that have been most affected. "Banks have cut variable housing loan rates more than the fall in their cost of funds, but reductions in business lending rates have been less," the paper said. "Overall, banks' net interest margins have risen a little recently, offsetting the fall that occurred in the early part of the financial crisis." |
Thursday, June 18, 2009
F.D.I.C. Is Watching as a Bank Sets Rates
CONCERN FOR TAXPAYERS GMAC is, in effect, a ward of the state. Thanks to a myriad of problems and subsequent bailouts, the federal government owns just over a third of the company and may end up with a majority of it. In the past, troubled banks have paid outsize interest rates in an attempt to raise money quickly. Then, they’ve turned around and made big bets on loans, hoping to earn their way out of trouble.
Mr. Yingling said he worried that Ally might try to do the same thing. “They’re betting with government money,” he said. If Ally were to fail, after all, the F.D.I.C. would have to make good on depositor funds. But Ally isn’t likely to fail. Why? Because GMAC uses money from Ally depositors to finance loans to ailing G.M. and Chrysler dealers and car buyers. And the government has made it clear that it wants the automakers to live.
While the old GMAC bank got into trouble with bad mortgages, among other things, bank officials say it is making only prudent bets now. It had better be. Its government owners are watching carefully. Meanwhile, Ally’s GMAC parent company is reasonably well capitalized once again as a result of the bailout funds.Posted by Canadian Funding Corp. Read more HERE
Wednesday, June 17, 2009
pressing need to cut interest
THE Reserve Bank saw no pressing need to cut interest rates in June given signs of a stablising global economy.
On June 2, the central bank left the overnight cash rate steady at a 49-year low of 3 per cent for a second consecutive month.
Minutes of that central bank board meeting, released today, show board members noted data showing the global economy was steadying following two very weak quarters in December 2008 and March this year.
The board also noted a pick-up in industrial production throughout Asia, particularly in China - Australia's second largest export market.
"Recent data provided further signs that growth had picked up in China," the minutes said.
"Members noted the very large increases in fixed capital investment by the public sector and the strong credit growth.
"They also noted that the value of exports had shown few signs of recovery after falling by around 25 per cent over the past year.
Read more Here
Bank of England voted 9-0 to keep interest rates at record low
Minutes of the 3-4 June meeting showed that the Bank's monetary policy committee agreed that the medium-term outlook for the economy had not changed despite recent surveys indicating that the worst may be over.
"Overall, the risk of a continued sharp contraction in output in the near term had receded somewhat," the minutes said.
"However, there was no reason to conclude that the medium-term outlook for the economy, and thus inflation, had changed materially since the Inflation Report had been finalised."
No arguments were advanced for either reducing or increasing the process of quantitative easing. The programme to boost the money supply currently stands at £125bn.
Some policy makers believe it is still too early to say the economy has turned and the outlook may not be any clearer until towards the end of the year. The Bank is worried that significant risks remain at home and overseas, especially the outlook for credit supply, which remains constrained.
"Even if developments over the month had been positive, the increase in confidence apparent in some financial market indicators and some household and corporate sector surveys remained fragile," the minutes said.
Howard Archer, chief UK economist at IHS Global Insight, said: "The minutes of the June MPC meeting indicate that, despite the recently improved economic data, the Bank of England is in absolutely no hurry to raise interest rates from the current record low level of 0.5% and is keeping an open mind on whether it needs to further extend its quantitative easing programme after expanding it by £50bn to £125bn in May. Read more here from Canadian Funding Corp
Open Market Operations in the United States
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