Westpac will not guarantee rate cut pass through

Westpac will not guarantee that it will pass on in full future interest rate cuts by the Reserve Bank.

The bank's head of Australian financial services, Brian Hartzer, told the ABC in an interview that he would not "signal" where Westpac was going on interest rates.

However, he said that Westpac economists expect the local economy to slow down and were predicting more official reductions by the RBA.

Mr Hartzer said that, while there had been reductions in wholesale funding costs (the interest rates paid by banks to borrow money on international markets), term deposit rates had dropped by less than the official cash rate because of competition between banks for finance.

"One of the real lessons out of the financial crisis was that the banking industry was too dependent on wholesale funding," he said.

"So banks, including the Australian banks, have been much more focused on making sure that a large part of their funding comes from deposits.

As a result the competition for deposits remains very intense." Westpac says it funds two-thirds of its loans from customer deposits.

Since the global financial crisis, local banks have funded a greater proportion of their lending book from customer deposits.

Westpac and the other big banks only passed on 20 basis points of the last 25 basis point reduction by the Reserve Bank in December.

Earlier this week, CLSA banking analyst Brian Johnson told PM the banks could afford to pass on future RBA cuts in full to customers.

He said that wholesale funding costs had dropped from 190 basis points above the benchmark Bank Bill Swap Rate (BBSW) to 70 basis points above swap.

"Certainly, at the moment, there is a strong argument that if we see the next interest rate cut, perhaps that should be passed all on to borrowers," he said.

The RBA has cut the official cash rate by 175 basis points since November 2011.

Covering flood areas Meanwhile, Mr Hartzer says Westpac has not denied insurance to customers in flood prone areas in Queensland unlike other insurers.

"In the recent floods, in the previous incident, we actually made a point of ensuring that we were providing cover in some of the towns where perhaps some of the other insurers wanted to rule it out," he said.

"We didn't think it made sense to draw specific lines and rule people out, but in the end the economics of these things do need to make sense." Last year, Suncorp announced that it would no longer insure properties in the flood prone towns of Emerald and Roma in Queensland.

So far, Westpac Insurance has received more than 1,700 claims from the floods in Queensland and New South Wales.

Mr Hartzer has been visiting flood affected areas of Queensland, including Maryborough, Brisbane, and Ipswich.

More than 60 Westpac branches were forced to close because of flooding and power outages earlier in the week.

He said Westpac was not planning to close down branches in areas at high risk of flooding.

The RBA meets next Tuesday for its first interest rate meeting of the year, with official rates currently standing at 3 per cent.

Mr Hartzer's division include Westpac's retail and business banking units and St George.

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