Kent Duston: Banking Reform Coalition spokesperson explains why banks take so long to pass on OCR savings

The OCR dropped 25 basis points again yesterday - but many homeowners have wondered why their mortgage rates haven't followed.

Many people currently on floating rates have yet to see the impact of the cuts materialise, and there's usually a week-long delay OCR changing and banks following suit with their various mortgage rates.

Kent Duston from the Banking Reform Coalition says it's unclear why it takes the banks so long to adjust things.

"After all, it's no harder than just hitting the return key on the keyboard. Really, there's no reason why it should not happen on the exact same day that the Reserve Bank lowers the OCR."

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Episode Transcript

Speaker 1 (00:00):
It is seven after six news talks. It'd been Liam
dan shortly on the bond markets that made Trump blink,
Jamie McKay on the beef prices holding up in the US,
Sam Dickey on how to invest in the volatile world.
And we'll get to Entebrady in the UK before seven too.
Right now, the ocr dropped. We all saw that yesterday,
But why haven't your mortgage rates joined them? Even for

(00:21):
those of you on a floating rate, which many people
still are holding up for a lower one, you'll yet
to see the savings materialize. And I know what you're thinking.
You're thinking, hang on, I saw the banks drop. Some
of the banks drop the rates yesterday. Yes you did,
but they dropped their advertised rates, not the effect of
rates that takes longer. A and Z and bn Z
interestock code do onions did some good work on this.

(00:42):
Am Z and bn ZI the fastest to give you
your savings about seven days, while kiwibank tacks an average
of two weeks to pass along the cut. Kent Dustin
started the banking reform coalition. He's with me tonight, Hi Kent?

Speaker 2 (00:57):
Sure here are you going? Yeah? Good?

Speaker 1 (00:58):
Thank you? Thanks for being with me. So you don't
like the time it takes for the banks to pass
on the cuts from the OCR. How how long do
you think it should take?

Speaker 2 (01:08):
Well, you know it's not just me, right, I don't
think anyone likes the amount of time takes for the
banks to pass on the OCR cuts because you know,
after all, it's no harder than just hitting the heading
the return key on the keyboard. And really, there's no
reason why it should not happen on the exact same
day that the Reserve Bank lowers the OCR. You can't

(01:29):
see any reason at all why why it takes weeks
and weeks to do this.

Speaker 1 (01:32):
Look, I agree with you in principle, and there's that
they've given a whole bit of The banks have given
a whole bunch of reasons why it takes them so long.
But there's one thing. If you look at the rate
at which they drop after there's a cut versus the
rate at which they increase after there's a hike, they're
about the same. In fact, they're actually faster, asb for example,

(01:53):
drop the rates faster than they raise them.

Speaker 2 (01:57):
Yeah, it's kind of interesting because you know, it does
look like the banks are cherry picking a bit of
data on this In the Commerce Commissions Market study into
personal banking last year they commissioned a piece of work
from the University of Auckland's Business School and it looked
at the long run data and what it said after
they did the big statistical analysis, you know, completely independent

(02:18):
of the banks themselves, is that after four months, because
you've got to take into account both the fixed rates
and the floating rates. Right after four months, the banks
had passed on ninety percent of the increase to borrowers,
but they only passed on fifty seven percent of the decrease, right,
So I think there was a long run behavior here
from the banks that they are literally you know, rockets

(02:42):
up but feathers down. And I think we see that
when you know, we're talking about weeks and weeks to
get what should be a pretty simple change through to
existing borrowers, but you're.

Speaker 1 (02:54):
Talking about the amount we were talking about the time,
so on the time, I mean, if they are dropping
rates at the same or faster rate than they are
raising them, does that not tell you something? Does that
not tell you that you know, maybe it is that
their IT systems are crap, or I don't know, something's
going on behind the scenes, or as they say, they
have to do due diligence, and there's a whole bunch

(03:14):
of other things they need to take into account. Would
that number not indicate that perhaps they're just slow, not bad.

Speaker 2 (03:22):
Well, you know, it's a bit hard to untangle slow
from bad, you know, because after all, look, no one's
arguing that their IT systems are terrible. Right. In that
same market study the Communce Commission, you know, they pointed
out that the ANZ Bank their core systems had been
depreciated all the way down to zero dollars, which means

(03:43):
they're so old that in both accounting terms and operational terms,
those systems are worthless. Right, So, yeah, their systems are bad,
but that's their own decision to have not reinvested in
up to date systems. So it's not like borrowers should
have to pay a penalty for that. In when it
comes to the timing of the delays, again, the banks

(04:05):
are fully in charge of this. You know, They're the
ones who decide the notice periods and the contracts, and
you know how it gets operationalized in their systems, and
how quickly they notify borrowers and all those things, and
It just seems that these delays are pretty self serving
because it's pretty obvious that holding interest rates too high
for too long costs us money and makes them profit.

Speaker 1 (04:27):
Kent thanks to that Kent dustin Banking Reform Coalition convena
with us not happy with how long it takes. But
I mean not that I'm here to stick up for
the banks, because no one wants to be that guy.
But they do take into account a whole bunch of
different numbers when they're deciding what their rates are going
to be, including swap rates, which have been all over
the place over the last week. So I wouldn't you

(04:48):
give a bit of leeway. Plus some of their according
to the Banking Inquiry, computer systems are so antiquated that
even passing the rates on for you know, if you're
wanting to lower the rate for US safe, which is
to their advantage, they can't do that until the first
of the following month. That's how ms dos their computer

(05:08):
systems are, so it might be, as I say, more
slow than bad.

Speaker 2 (05:13):
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