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Westpac Cuts Mortgage Rate By 37 BP; Withholds Part Of RBA Cut

05/04/2012 | 01:20am US/Eastern

--Westpac cut its standard variable mortgage rate by 37 basis points after RBA rate cut

--Comonwealth Bank cut rates by 40 basis points and National Australia Bank by 32 basis points this week

--ANZ Bank set to report whether will pass on full 50 basis points cut next Friday

(Adds details of CBA and NAB cuts in the 5th-6th paragraphs; comments from Westpac CEO in the 8th paragraph; Fitch comments in the 9th-10th paragraphs.)

By Caroline Henshaw

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Westpac Banking Corp. (>> Westpac Banking Corporation) has followed peers in withholding part of the Reserve Bank of Australia's 50-basis-point rate cut to the cash rate this week from its mortgage customers.

Australia's second-largest bank by market value on Friday cut its standard variable mortgage rate by 37 basis points to 7.09%, effective from May 14. On its variable businesses loan rate, it passed on the RBA's full cut of 0.5%, the bank said in a statement.

The new standard variable rate is the lowest offered by Westpac since April 2010, and the cut is the biggest single reduction in more than three years. The bank says the move will save homeowners A$900 a year in interest repayments on an average A$300,000 mortgage.

"We feel it is particularly important to help small businesses at this time," said Westpac Group Executive of Retail and Business Banking Jason Yetton. "At the same time, we understand the need to keep mortgage rates as low as possible and continue to reduce rates for homeowners."

Earlier this week Commonwealth Bank of Australia (>> Commonwealth Bank of Australia), the nation's largest home lender, said it would reduce the interest rate on its range of variable home loans by 0.4% from May 11, dragging it to 7.01% a year. Rival National Australia Bank Ltd. (>> National Australia Bank Ltd.) has already announced a 0.32% reduction to its own headline mortgage rate, bringing it to 6.99%--the lowest of the big four banks.

Of the majors, only Australia & New Zealand Banking Group Ltd. (>> Australia and New Zealand Banking Group) has yet to show its hand on rate cuts. Its announcement is due next Friday.

All of the banks have blamed higher funding costs, intense competition for retail deposits and slowing loan growth as reasons to withold part of this week's 50 basis-point rate cut by the RBA this week.

"The margins pressures have become a bit stronger in the second quarter of this half," Westpac Chief Executive Kelly told reporters at a briefing on Thursday after the bank reported a record A$3.12 billion of cash earnings for the first half of fiscal 2012.

Fitch Ratings' Director of Financial Institutions Tim Roche said the move could help safeguard the banks' margins--which have been squeezed by high funding costs, slowing credit grow and intense competition for retail deposits--but would have little effect on their risk profile.

"Profitability is only one of the factors we look at," he said. "I don't think a few basis points here or there will affect their absolute rating level."

-By Caroline Henshaw, Dow Jones Newswires; 61-2-8272-4689; caroline.henshaw@dowjones.com

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