ASB has just increased its fixed rates again! It has been the first bank to lift its fixed rates every time since rates started going up in September 2009. (Four rate increases.) Am I the only person that notices these things? On the other hand, and to its credit, ASB was the only major bank to reduce their floating mortgage rate for all customers to 5.75%.
The table below shows that in mid-October ASB had a one-year fixed mortgage rate of 6.00% against a one-year wholesale rate of 3.60% giving the bank an income margin of 2.40%. When wholesale rates dropped in November to 3.40% none of the banks dropped their mortgage rates so income margins across the board increased to 2.60%.
Wholesale rates have jumped back up to slightly above where they were in October, yet mortgage rates have gone even higher. With the latest price hike from ASB the bank’s income margin has increased to 2.81%. Between October and January margins have increased from 2.40% to 2.81%. That is a 17% expansion of its profit margin net any change in wholesale costs.
If you want another interesting comparison CBA in Australia (which owns ASB) has a 1.91% income margin on its one-year fixed rate.
The point I’d make is this: ‘the credit crisis’ or ‘funding costs’ are not good explanations of ongoing increasing bank margins, especially since October. Margins are increasing because they can. It will be interesting to see which of the other banks follows next.
