More cuts in lending rates are expected as the big banks switch their focus from the hard-pressed housing market to the wider business sector.
National Australia Bank yesterday became the second of the Big Four banks in three days to announce another 0.2 of a percentage point drop in its interest rates following the move by ANZ on Friday.
ANZ cut its rates by 0.25%, taking the total of its most recent reductions to slightly more than the surprise economy-boosting 1 percentage point fall announced by the Reserve Bank of Australia two weeks ago.
But in a move that reflects growing concern among political, economic and business leaders, NAB said its lower interest rate would apply not only to its mortgages but also to businesses and farming — two sectors the bank counts as its major customers.
For hard-pressed home owners, the mortgage rate will drop to 8.36% from next Monday in a move that will take the savings on the repayments on an average $250,000 loan to more than $200 a month since the RBA's reduction.
However, NAB head of Australian operations, Ahmed Fahour, underlined the need to extend the impact of the lower rates to the wider community to try to prevent the slowdown becoming worse.
"We will do everything we can, while still acting responsibly, to help our customers get through these current challenges," Mr Fahour said yesterday.
The decisions by NAB and ANZ will put increasing pressure on the other two big banks, Commonwealth and Westpac, which are expected to push through matching reductions in the next few days.
The move comes as ANZ and NAB are this week expected each to report disappointing full-year earnings after being hit with hefty write-downs.
NAB, which has suffered an $830 million hit caused by its exposure to complex investments in US subprime housing loans, has already flagged that its profit will be no higher than $3.9 billion. The bank has brought forward its results to tomorrow, in a decision that may be linked to plans to raise up to $2.5 billion to bolster its balance sheet.
The write-downs suffered on various investment portfolios detailed to date are likely to translate to an 11% fall in full-year earnings to the end of September.
ANZ chief executive Michael Smith, will mark his first anniversary at the bank by reporting an even larger drop in profits.
ANZ's high-profile problems with two failed broking firms, Opes Prime and Primebroker, and the $1.6 billion it has set aside to cover bad debts in its corporate loan book will result in the bottom line taking an $800 million hit.
According to Credit Suisse analysts, the bank should unveil $3.14 billion profit on Thursday compared with last year's $3.92 billion.
The profit slide will squeeze Mr Smith's ambitious target to double profit by 2012.
Mr Smith set this deadline last December, when the bank was headed for a $4 billion-plus outcome.
Westpac is expected to round off the big bank reporting season next week, with analysts anticipating an annual profit of $3.74 billion.
Source From: SMH
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