As I have been forecasting, recent interest rate increases by the major banks have given the second tier banks and non-bank lenders an opportunity to recover margins. Until now these have been compressed by the majors' great advantage over their smaller peers: the capacity to hold significantly less capital against their loan portfolios. The smaller lenders' only option for remaining price competitive has been to accept less margin for risk on the new loans they have been writing; writing underwater as some have termed it.
Well today, one of the institutions that we could most liken to a community bank has seen fit to follow suit. Whilst they also have shareholders to please, the good news is that these shareholders are many of us: members of Australian industry superannuation funds and trade unions.
In making their announcement, ME Bank has explained its decision:
Yes, it is not good news for their home loan customers with variable rate loans. But perhaps this move increases the likelihood of other lenders making similar announcements and the RBA restoring home loan holders' disposable incomes by lowering the cash rate next week or in early December.
The volatility continues.