It is unrealistic to expect banks to pass on the full value of any future cuts in official interest rates to home loan customers, Bendigo and Adelaide Bank managing director Mike Hirst says.
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After the banks' partial pass-through of the August official rate cut sparked a furious political backlash, Mr Hirst slammed as "opportunistic" recent commentary that there was a direct link between RBA changes and the rates offered by banks.
While Mr Hirst did not say which commentary he was referring to, Australian Securities and Investments Commission chairman Greg Medcraft last week tabled a briefing note he said showed the banks' funding costs "completely tracked" the official cash rate.
Mr Hirst told Bendigo's annual meeting he believed a key cause of the political pressure on banks was home loan pricing.
"There is an expectation in the community that banks should pass on, in full, any rate cut that the Reserve Bank of Australia (RBA) makes to the official cash rate. As interest rates move lower this is not a realistic expectation for a number of reasons," Mr Hirst said.
Mr Hirst argued the RBA cash rate was a gauge of overnight lending between banks, not their overall cost of funds, which depend on what lenders pay for deposits and wholesale money.
As rates fall, banks say it is increasingly difficult to cut some of the rates they pay on deposits, because customers may move their money into other assets.
