Australia Banks Should Raise Mortgage Rates This Year, UBS' Boubouras Says

Australian banks should raise mortgage rates before the end of this year independent of any increases by the nation’s central bank to soften the impact of rising funding costs, UBS AG said.

The country’s banks have said the higher cost of fundraising on debt markets since the financial crisis is hurting lending profitability. Westpac Banking Corp., Commonwealth Bank of Australia and Australia & New Zealand Banking Group Ltd. haven’t raised home-loan rates faster than the Reserve Bank of Australia since December, when politicians and media accused them of greed.

“They potentially should look at increasing mortgage rates outside the RBA between now and Christmas,” George Boubouras, head of investment strategy and consulting at UBS’s Australian wealth-management business, told reporters today in Sydney. “That would be a prudent thing to do from a shareholder perspective.”

Banks needs to increase rates on mortgages beyond the central bank’s pace to maintain margin expansion, said Boubouras. The Reserve Bank of Australia is forecast to keep its benchmark interest rate at 4.5 percent for a fourth month today, according to all 25 economists in a Bloomberg News survey.

Commonwealth Bank’s funding costs have risen 1.22 percentage points since the global financial crisis due to higher deposit rates and fundraising costs, the bank said in an Aug. 11 presentation. According to the RBA, domestic banks rely on offshore and local bond sales for 28 percent and 19 percent, respectively, of their total funding.

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

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