National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) have joined Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA) in hiking interest rates on mortgages to in a bid to improve their capital positions.
Like ANZ's decision to up variable mortgage rates by 0.18% to 5.56%, NAB's decision to raise its variable home loan rates by 0.17% to 5.6% scorns mortgagees, and rewards shareholders who receive very generous dividends.
NAB blamed 'market conditions' as a catalyst for the hike, along with tougher regulatory changes.
"Today's decision has not been easy, but we believe this is the right decision for the long term", NAB's head of personal banking, Gavin Slater, was quoted as saying by Fairfax. "We know we have to balance the interests of our customers with the needs of our more than 550,000 shareholders."
In August, following the successful raising of $5.5 billion from shareholders to meet new regulatory capital requirements, NAB's CEO Andrew Thorburn said:"Maintaining a strong balance sheet has been an essential component of our Group strategy, and the recently completed $5.5 billion rights issue was consistent with this objective. As a result, we are well placed to respond to APRA's announcement of an increase in mortgage risk weights from 1 July 2016."
During the third quarter update, Mr Thorburn also said unaudited cash earnings were approximately $1.75 billion – up 9% on the prior corresponding period. At 31 March 2015, NAB had roughly $258,154 million of mortgages in Australia and achieved a 'housing lending margin' of 1.33%.
In dollar values, NAB's housing lending generated some $1,687 million in net interest income for its most recent half-year. Meanwhile, it paid roughly $2.2 billion in dividends and distributions to investors.
While I don't know the exact mix or proportion of fixed rate mortgages to variable interest rate mortgages within NAB's home loan portfolio, I'd be willing to bet many Australians would've elected for variable rate mortgages given how quickly official interest rates have fallen since 2011. That could potentially leave many mortgagees vulnerable when NAB's and ANZ's interest rate hike comes into effect November 12.
ANZ Australia CEO, Mark Whelan, said the rate hike reflected the increased cost of capital the bank must bear in the face of tougher lending requirements set down by APRA, but was quick to trumpet its 'lowest' variable mortgage rate.
"Despite these additional costs, we are committed to working hard to keep lending rates as low as possible for customers and we're pleased to have been able to maintain the lowest standard rate of the major banks for owner occupiers," Mr Whelan said.
ANZ's variable 5.56% interest rate mortgage compares to the variable interest rates of less than 4% offered by some regional lenders and mortgage brokers.
