The Australian Bankers’ Association (ABA) has defended decisions by lenders not to pass on all of last week’s cut in official interest rates.

Although banks are making profits on home loans, ABA chief executive David Bell said banks’ margins had continued to fall since 1996.

“That has been a continued and long-term trend. Yes, they kick up, they kick down, but in overall terms they have declined from just under four per cent to just over two per cent,” he told ABC Radio.

“So as a measure of competition, if you look at the decline in bank margins, you’d have to say we have a very competitive banking sector here.

“The other benefit is we have a very strong and stable banking sector here in Australia.”

Most of Australia’s commercial banks passed on less than half of last week’s 25-basis-points cut to official rates to customers, while the National Australia Bank passed on none.

Mr Bell said the economy was only going to get worse.

“It is important and vital in fact that our banks remain strong and have strong balance sheets so they can continue to lend,” he said.

“We have all seen the consequences of what happens when you have bad banking practices. We have seen the tremendous social dislocation that has occurred as a result.”

Luci Ellis, head of the Reserve Bank of Australia’s financial stability department, said there was no law, economic or legal, requiring banks to set their interest rates in lockstep with the RBA.

“There will be times there will be more than one for one passed through, and there will be times when there is less than one for one passed through,” she told ABC radio.

AAP