Barclays Passes Carney’s Rate Cut While HSBC, NatWest Drag Feet

  • HSBC, Lloyds and Natwest deliberating whether cut SVR rates
  • Carney says banks have ‘no excuse’ not to pass on savings

Britain’s biggest banks are mulling how to handle Mark Carney’s rate cut.

While Barclays Plc said it will lower mortgage costs for customers with base rate tracker and standard variable rate deals after the Bank of England cut its key measure by 25 basis points, HSBC Holdings Plc, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc’s NatWest unit only committed to review their pricing. 

The delay conflicts with BOE Governor Carney’s comments on Thursday, when he warned banks they have “no excuse” not to pass on the cut to customers.

With U.K. banks running out of ways to offset the impact of record low interest rates, the BOE’s first cut since 2009 in the wake of the country’s vote to leave the European Union is set to further squeeze their earnings. Carney’s move will probably trim $100 million from HSBC’s earnings for the rest of this year and 100 million pounds ($131 million) from Lloyds over the coming 12 months, the banks have estimated.

For more on the central bank’s decision to cut interest rates, click here.

“Banks with a large proportion of variable-rate loans are likely to see a bigger hit from lower rates,” Citigroup Inc. analyst Andrew Coombs said in a report. “Banks with a large proportion of deposits in savings accounts have greater ability to offset the impact of lower rates by cutting deposit rates.”

The BOE base rate “is only one of a number of factors that we take into account when reviewing interest rates,” a Lloyds spokeswoman said. “The 0.25 percentage point reduction will form part of the ongoing rate reviews across our product ranges.”

For Lloyds, Britain’s biggest mortgage lender, the base-rate cut will “make things tougher, Chief Financial Officer George Culmer said last week at the bank’s second-quarter results. It would trigger a “sort of automatic reprice” for about 70 billion pounds of mortgages, he said. Lloyds has a total loan book of about 453 billion pounds.

Tight Margins

Alongside the rate cut and and a 60 billion-pound bond buying program, Carney unveiled a 100 billion-pound loan program for banks to help offset lost income from lower interest rates as profit margins on loans narrow.

HSBC Finance Director Iain Mackay said Wednesday the bank would lose a “not insignificant, but not material” $100 million of net interest income with a 25 basis point cut.

“In light of the BOE’s decision we are currently reviewing our SVR and savings rates across our range and will notify our customers of any changes in due course,” a HSBC spokeswoman said in an e-mailed response to questions today. “Neither our SVR nor our savings rates are directly linked to base rate.”

Barclays said in its second-quarter earnings statement that its U.K. unit could lose 82 million pounds of net interest income in the event of a cut.

RBS’s NatWest English retail division pledged to review whether to make any changes to its variable-rate products and provide an update in the “near future,” according to a statement.

The BOE cut comes amid heightened competition in Britain’s housing market with a number of new entrants. The average mortgage rate has fallen from 3.8 percent in March 2009 to 2.9 percent, according to the Council of Mortgage Lenders.

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE