RBA Reduces rates by 0.50%
- Thread starter buzzlightyear
- Start date
Hey buddy, enough with the relevant information already.
Australian borrowers are in the midst of receiving a materially larger reduction in their costs of borrowing than they thought they would get a week ago.
And rates are now well below the long term average.
And the economy is the envy of the industrialized world.
It's a freakin' outrage and we're all entitled to be mad as hell
you mad?
Hey buddy, enough with the relevant information already.
Australian borrowers are in the midst of receiving a materially larger reduction in their costs of borrowing than they thought they would get a week ago.
And rates are now well below the long term average.
And the economy is the envy of the industrialized world.
It's a freakin' outrage and we're all entitled to be mad as hell
That's right: We need people to swallow the banks' financial declarations whole, not question whether they are being fed complete fairy floss in the biannual financial statements as well!Hey buddy, enough with the relevant information already.
That's right. They should feel damned lucky the banks are letting them have any of the May reduction.
Well, if you don't count the roughly 25 basis points the banks just filched. Otherwise, rates look about one standard cut below the average, don't they? Which is too good for these plebs anyway!
Although, given the state of the rest of the industrialised world, that's actually not saying a heck of a lot. Lucky Canada's a frozenassed place though, eh?
Right! Although prospectively less mad if the banks would release their funding costs to the RBA monthly so that the public could be confident SVRs will actually drop when funding costs do.
BOM reduces rates by 0.38
SVR reduces to 7.04%.
SVR reduces to 7.04%.
Only 2.17% NET interest margin hey? Poor things, you gotta feel for them!
How does this compare to overseas banks?
Dunno, but I suspect that's a very long answer. "Overseas" is a big place you see - it might help if you were a little more specific...
Only 2.17% NET interest margin hey? Poor things, you gotta feel for them!
Let's see...To be earning $2.17 on every $100 loan they make, all well knowing inspite of all the checks done that are economically viable on the creditworthiness of the borrower and valuation on the tangible assets. The borrower could end up defaulting or the value of the asset drops 30%. The worst situation would be both happening. Look at USA.
So a transaction that was going to produce a profit of $2.17 suddenly has resulted in a loss of around $35 ($30 capital loss + $5 costs to fire sell).
In order for the bank to now break even and earn the $35 it needs to make loans of $1600. 16 times the original loan amount! and hope and pray none of them default and/or value of the asset drops.
Each basis point increase is like gold for the bank. And each basis point reduction in net margins takes the multi-billion dollar bank one step closer to catastrophic loses.
Cheers
Oracle.
Dunno, but I suspect that's a very long answer. "Overseas" is a big place you see - it might help if you were a little more specific...
Canada, USA, UK, Germany, Japan..
I ask to put some international benchmarks and context against the Australian banks performance.
The question was for the forum, as I didn't suspect you had that information on your desktop
Given the lawsuits the banks are facing over increased fees (where they have presumably raked in profits after cutting margins on interest rates) I reckon they should just crank up the net interest margin to historical levels (4%+):
http://www.rba.gov.au/publications/bulletin/2012/mar/5.html
United States:
http://misunderstoodfinance.blogspot.com.au/2010/02/what-makes-banking-business-different.html
http://www.rba.gov.au/publications/bulletin/2012/mar/5.html
United States:
http://misunderstoodfinance.blogspot.com.au/2010/02/what-makes-banking-business-different.html
Thanks for that hobo-jo. Given the level of competition and market share the major banks have, maybe we are returning to the mid 90s of 4%+ net margins.
Oracle, your example is a bit off base IMO. Your capital loss of 30% doesn't include loss of the investor's equity, which accounts for the first 20% for resi properties, either through the original LVR or the LMI policy. The remaining 10% would be the bank's problem so you might want to re-do your numbers on that basis.
Let's not forget that when it all hits the fan like this, the govt just steps in and guarantees the debt anyway, as we have seen very recently, so it's not exactly armageddon for the bank while the govt retains a decent balance sheet at least. And let's not forget as well that it's not the bank's money they're lending...
BTW, despite my flippant remarks in this thread to date, I actually like our banking policy. We have strong banks, demonstrated ability to ride through the GFC, some competition at least and reasonable regulation and capital adequacy. Of course if it all hits the fan in asset markets govt has to step in but this happens in every country and you can't run a bank thinking the market is just around the corner from collapsing 50% every minute. A balance is required or nobody would ever lend anything.
And if people think banks have a licence to print money with little to no risk they can become a shareholder at prices with pretty reasonable dividend yields ATM too. On that note, does anyone know what has happened, if anything, to margin loan interest rates?
Hi buzz,
Where'd you get your info from re BOM reduction?
According to twitter - 'offers Victorians a better deal by decreasing our standard variable home loan rate by 0.41% to 6.99% Effective from 14/5/2012'
Mistyped apologies, it is 6.99%..
Funny how there's no announcement on their website, have to resort to twitter..
Well the SVR is one thing - I am awaiting an update on how their discounts are going to be like as BoM has been very aggressive lately with their loan discounting.
I understand the owners equity bit..but purposely avoided it as it still doesn't change the point I was trying to make. 2.17% margin is not significant payoff when you consider the risk they take of default and/or asset price going down.
Govt can step in but there is no free money, you and I both know that. Future generations will have to repay all the money government borrows to bail out banks. Even if the government doesn't need to borrow that money due to surplus..it still means less money for the government to do stuff they need to do.
Let's just say our banks are very fortunate to not have incurred the massive losses of some of the US and UK banks. Some of these banks have still got so much toxic assets on their balancesheets and are still making losses (albeit less than before) after nearly 5years since GFC.
I am paying around 7.15% and have been gradually accumulating shares of companies with strong balance sheets with dividend yields anywhere between 8%-12% and growing.
Cheers,
Oracle.
I have one basic home loan with them after they changed from St George in Vic. My assumption is this rate will go down the same amount as their SVR announcement? If not any idea when and where they'll announce decreases on each product?
Should be soon. But your home loan discount is already locked in. I was talking about discounts for new loans with them.
Similar threads
