By Jill Fraser for Lending Central

Not only does Aussie Home Loans’ executive chairman, John Symond believe that banks are justified in passing on less than half (or in NAB’s case zilch) of the Reserve Bank’s official rate cut, he challenges the RBA’s decision to reduce the cash rate to a five-decade low of 3%.

Symond spoke to Lending Central earlier today.

LC: What is your response to the banks passing on such a paltry percentage of the RBA rate cut? Can it be rationalised?

JS: The answer is yes..

LC: That’s an unexpected reply.

JS: Yes and I’ll tell you why. Over the past 17 years no one has been a bigger critic of the banks than me, particularly the first 10 years.

But when they dropped rates by 3%, improved their service and changed their focus regarding their dealings with clients my criticisms became less. I will only criticise if it’s valid.

The banks are paying truckloads more for money to try to raise money on the global markets..

LC: Still? Even with the Government guarantee?

JS: Absolutely; without any shadow of a doubt. They are still paying 140 basis points over cost of funds, whereas previously they were getting it for 15 bps.

The reality is that the Reserve Bank has now dropped official rates by 4.25% and the banks have passed on the bulk of it. So to have kept back, say half a percent in order to retain a robust, safe operating banking system - our banks are now categorised among the top 12 safest banks in the world - is perfectly justified.

If we bash the banks and weaken their financial position to the point where they can’t borrow money at any cost and need to be bailed out we will then suffer tremendously.

LC: But wasn’t the reasoning behind the RBA’s rate cut to help stimulate the economy? Wasn’t there an expectation that the banks would pass it on to consumers? What was the point of it otherwise?

JS: Exactly. That’s why I was surprised that the RBA dropped it 0.25%. The banks had already said that they wouldn’t be passing on any cut. So I don’t know why the RBA did it. I was stunned.

I thought if rates did drop it would be 0.5% and banks would pass on around 0.3%.

LC: So this is not a result of diminishing competition from non-banks?

JS: No.

The argument can be that with banks still making $3 billion to $4 billion in profit surely they can afford to pass on the full cut.

The answer is yes, they can afford to but their shareholders woouldn’t like it and they don’t want to weaken their financial robustness, which will weaken their credit rating, which will make money much more expensive to borrow, which in turn would be passed on to consumers.

LC: Does your current stand come from your association with the CBA?

JS: Absolutely not.

With all the rates cuts we have passed on around 0.25% more than a number of the banks. But we still kept back part of it.

I’m still the first one to criticise the banks but only if it’s warranted.

The question is, do we prefer to have a banking sector that is strong and still lending money, or do we want to smash the banks and weaken their position and end up paying 3% more for our money?