Since the Official Cash Rate (OCR) started its descent last August, Kiwibank has been dragging its feet the longest amongst the big banks when it comes to cutting its floating home rate for existing customers.
Interest.co.nz decided to analyse how long each of NZ’s big banks have been taking to cut this key interest rate after ANZ CEO Antonia Watson was grilled on the topic during her second appearance at Parliament’s banking inquiry.
Other bank CEOs who have reappeared at the banking inquiry have also been questioned on this subject.
To do this, interest.co.nz looked at the average length of time it took ANZ, ASB, BNZ, Westpac and Kiwibank to implement a floating mortgage rate change following every OCR decision since August 2024, and then queried those time averages with each of the banks.
We picked floating home rates as the average to measure as they are typically one of the first rate changes out of the gate from banks following changes to the OCR. Floating rates are more directly influenced by OCR moves than fixed-term rates. And even though fixed-term rates are more popular with borrowers, floating rates should be an option in a falling interest rate environment while borrowers assess the best time to refix. Floating rates also work as the basis of business and agriculture lending rates.
We measured the length of time it took for banks to implement changes to their existing home loan rate by business days and for existing customers only. Generally, floating home rate changes are available sooner for new bank customers versus existing ones, but we wanted to focus on existing customers in this story.
How long the banks have taken to lower
Since the OCR started to come down in August last year, Kiwibank has taken 13.5 business days on average to make floating home rate changes for existing customers after each OCR decision.
Asked why this was the case, a Kiwibank spokesperson said that whether there was an increase or decrease, when the bank adjusted floating home loan rates, Kiwibank’s current process and rate adjustment period was the same.
“This includes the time to send customers the required disclosures. Importantly, over the past five years, Kiwibank has consistently had one of the lowest variable rates compared to the larger banks,” the spokesperson said.
Kiwibank, the fifth biggest bank in the country, reported at its half-year results in February that its home lending grew 2.1 times faster than the overall market in that financial period.
Westpac isn’t far behind Kiwibank and since August 2024 has taken 13 business days on average to pass on OCR reductions on variable home lending for existing customers.
ANZ, the country’s biggest home lender, told interest.co.nz it has taken 8.4 business days on average to move its floating home rate since August 2024.
However, those calculations include a floating home rate change which became effective on August 15th last year, but was announced by ANZ on July 31st. This was prior to the first cut to the OCR by the Reserve Bank on August 14th.
If that ANZ prior rate change is excluded, on average cuts to ANZ’s floating home loan rates for existing customers have taken effect 10.25 business days after each Reserve Bank announcement since August 2024.
ASB and BNZ tied as the quickest banks to drop their floating home rates since August last year, with each bank taking 7.75 business days on average to change that rate for existing customers.
These two banks have been 5.75 business days quicker on average to cut their floating home rate for existing customers than Kiwibank.
'Abuse of market power'
Banking Reform Coalition (BRC) convener and economic consultant Kent Duston told interest.co.nz banks should be passing on falling rate changes immediately to customers.
Duston said the most recent cut to the OCR in February, which was well telegraphed beforehand, served as a key example as to why banks should be making interest rate cuts effective from the day of the OCR announcement.
“Everyone knew that was going to be a 50 basis point reduction, there’s no sense in which it took anybody by surprise,” he said.
“No one woke up and went, 'oh my God, look what happened.' So you know that they had plenty of lead time on this.”
On Tuesday, the BRC published a press release criticising the Commerce Commission and the Financial Markets
Authority (FMA) for letting banks delay passing OCR interest rate reductions to their customers.
The BRC has put the cost of delays by the banks to pass on interest rate cuts immediately after the February OCR alone as likely resulting in losses of more than $5 million for customers.
“Our analysis shows the banks intentionally delayed passing on the full reduction in the OCR last month and boosted their profits at our expense,” Duston said.
“This is blatant profiteering, and an abuse of market power that is meant to be prohibited. Yet the Commerce Commission and the Financial Markets Authority are simply refusing to take action on behalf of consumers.”
The BRC made a complaint to the Commerce Commission after the February OCR, requesting that the Commission investigate these issues.
In response to an earlier letter from the BRC last year regarding price-monitoring interest rate movements, the Commission told the group in September 2024 that it had no plans to monitor interest rate movements. In the same letter, the Commission suggested that it was an area that the BRC “may wish to continue calling for transparency from the major banks”.
The BRC wants structural separation of NZ’s financial system, including making banks choose between being a retail or wholesale bank as they wouldn’t be allowed to be both.
How long the banks took to hike
We also decided to measure the pace the same five banks took to raise floating home rates when the OCR jumped from 0.25% to 5.50% between 2021 and 2023 in response to high inflation.
It is not a direct comparison because there were 12 OCR hikes in the 2021 to 2023 period compared to the four OCR decreases since August 2024 we analysed, but the results are still interesting.
Data from across the banks shows ASB, the second largest home lender in NZ, was the fastest bank to raise its floating home rate for existing customers between October 2021 and May 2023, taking an average of 10.6 business days.
An ASB spokesperson told interest.co.nz the bank had reduced its floating mortgage rates on average 2.85 business days faster since August 2024 than it had increased them during 2021 to 2023.
“For the periods highlighted we were one of the first banks to adjust rates both as the OCR rose, and as it fell,” the spokesperson said.
“Whatever way variable rates move, there are processes we must follow to meet our obligations as a responsible lender and these impact the time it takes us to implement rate changes across our systems. We have reduced our timeframes to pass on variable rate changes to our customers over the past nine months and further improvements are in progress.”
Between October 2021 to May 2023, ANZ took 13.55 business days on average to move its floating rate, while BNZ took 13.9 business days on average, both for existing customers.
Kiwibank was next at 14.1 business days and then Westpac at 16.08 business days. Westpac took 5.48 more business days on average compared with ASB to pass on a higher floating home rate to existing customers.
IT challenges
ANZ’s Watson told the banking inquiry this month the bank tried to pass on interest rate cuts “as soon as we’re able to do so within our systems and the disclosure regimes”.
For some products, like ANZ's Serious Saver product, rate reductions could only be passed on at the beginning of the month due to ANZ’s IT systems.
Watson said this was something ANZ would like to change and the bank was working on it. “We are implementing new systems as we speak,” she told MPs.
Interest.co.nz queried the other big banks to see if they had any savings products or loans where interest rate changes were restricted by IT systems in terms of timing.
In comments attributed to its executive general manager of personal banking Adam Boyd, ASB said it worked quickly in rising and falling rate environments to adjust rates for saving and lending customers.
He said when ASB changes its variable rates the bank has to integrate the new rates into its loan systems which can take several days.
“We are always working to improve this process so we can pass the new rates on to our customers even faster,” he said.
A Westpac spokesperson said Westpac had no IT system restraints around its variable lending and deposit products, and the bank can implement changes at any time of the month.
However, the spokesperson added that like other banks, Westpac is required to write to existing home loan customers and notify them of changes to their rate.
A Kiwibank spokesperson said for customers who have existing home loans, business term loans or business overdrafts – which are on variable interest rates – Kiwibank allows two weeks for changes to take effect for those customers.
This is because of processes, systems and requirements to provide details of the change, the spokesperson said. However, Kiwibank can change its carded interest rates in Kiwibank’s IT systems on any business day.
BNZ did not respond to interest.co.nz's query but BNZ’s Chief Executive Dan Huggins did tell MPs during his second grilling at the banking inquiry in March that it “takes time” for BNZ to push through rate changes due to its IT systems.
“The time that we take following those pricing changes reflects the complexity of making those changes within our systems,” he said.
Huggins added that BNZ was “investing heavily” in upgrading its underlying core systems.
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