Bank of Queensland challenges big four banks with promise to hold rates

Bank of Queensland (BOQ) has kept the pressure on the major banks to think carefully before pushing up interest rates with a promise to keep its rates on hold.

Yesterday afternoon, in a clever strategic move a day before ANZ and Westpac made its announcements to raise its rates, BOQ managing director and CEO Stuart Grimshaw said: “We would like to reassure customers that we are holding our standard variable interest rate steady, regardless of competitors’ movements, until the next RBA meeting.”

“We understand many home owners and small business owners are concerned about out of cycle interest rates and want to take this opportunity to reassure our customers that we won’t be increasing our standard variable interest rates at this stage,” he said.

Despite their comparatively tiny size, the major banks will have taken note that some of their second-tier rivals having been picking up more business of late. BOQ grew its mortgage book by 23.5% over 2011 and Bendigo & Adelaide Bank by 14.5% according to APRA figures, while ANZ managed just 6.5% albeit with mortgage book eight times larger. 

Speaking on the ABC’s Inside Business program, Grimshaw told Alan Kohler the big four were under quite a bit of funding pressure.

“As you've been reading yourself and talking about, Europe is the one that we don't know what's going to happen. And if the Europeans don't - I think if they don't come transparently clean and put together a program, a resolution, then I think we will have some hiccoughs in the debt markets which will have ramification down here, particularly for the majors,” Grimshaw said.

The major banks have been dialling up the rhetoric about increased costs of funds over the past few weeks backed by the Australian Bankers’ Association, which put out a statement explaining “how bank funding works and why banks are under funding cost pressures”.

It was widely assumed that if the RBA had cut rates earlier this week, the major banks would not have passed on the full amount.

RateCity CEO Damian Smith says it will be a risky move by lenders to increase their interest rates on home loans, especially at a time when mortgage growth is so low and with more customers able to switch lenders without penalty. 

Smith said if 1% of big four customers – about 20,000 home loans – were to switch to a second-tier lender that would cancel out the extra $228 million per year the banks would make by raising variable interest rates by as little as 10 basis points.