NAB, Commonwealth pass on rate cuts to business loans, but Westpac customers get left behind

Retailers are welcoming the Reserve Bank’s decision to cut interest rates to a 50-year low of just 2.5%, while the major banks are sending mixed messages to the small business community.

The response is typical of the banks’ practices regarding business lending and interest rate cuts. While banks are under immense pressure to pass through rate cuts on residential home loans, movements on business products are typically delayed.

After the RBA announcement yesterday, NAB, ANZ and the Commonwealth Bank all made their responses:

• NAB has passed through the full 25 basis point cut to business loans, but it has not specified whether that cut applies to existing products or just new ones. SmartCompany contacted NAB but a reply wasn’t available prior to publication.
• The Commonwealth Bank has passed on the full 25 basis point cut to both existing and new business products.
• Westpac hasn’t passed through its 28 basis point cut to business loans. A spokesperson told SmartCompany the decision is “under review”.

ANZ will make its decision regarding rate cuts this coming Friday, as per its monthly schedule.

Mitchell Watson, analyst at Canstar, told SmartCompany this morning that since the May cut, there has been a drop of 29 basis points on the average business loan.

“But the data suggests it happens in stages,” he says.

“Unlike in home loans where there is a general pass through rate of a one to two weeks, these changes in business rates occur over a longer period of time but are generally passed through.”

Yesterday’s decision was relatively quick for the banks – business loan decisions aren’t usually made on the same day as the cut itself. But with rates now at 50-year-lows, economic circumstances have changed and banks may be more likely to pass on cuts quickly.

In a statement, Australian Retailers Association executive director Russell Zimmerman says the move is a “welcome change”.

“What Australia needs, now that we are in an election, are clear commitments from both political parties regarding business growth, flexibility and lower taxes along with genuine tax and workplace reform,” he said.

The fact this cut has come at the beginning of an election cycle does not bode well for the government – the Coalition has already used the cut as an example of what it calls Labor’s poor economic management.

For now, though, Westpac and ANZ customers will have to wait and see what happens to their own loans.

As Watson says, there are a variety of factors that could be at play, leading the banks to delay business loan decisions.

“It could be anything,” he says. “There are changes that happen over time with lending products…but generally the business cuts are passed through.”