Our Interest Rate Settings

Recently we received an email from a customer complaining that Bendigo Bank had delayed passing on the latest reduction in official interest rates until 1 January 2002, after the four major banks. Instead, we will do so at the commencement of our next monthly cycle, 1 January 2002. Why is this?

Banks fund their loans either from deposits raised through their branch and telephone banking networks, or through borrowing money from wholesale money markets. Some banks are utilising this "wholesale" money, whereas Bendigo is predominantly (88%) funded by its community depositors, one of the highest - if not the highest - retail funding rates of any Australian bank. As we are a community-based bank, many of our depositors (eg. pensioners, self-funded retirees) are "ordinary" people who depend on income from their deposits. Self-funded retirees in particular have been severely impacted in this low interest rate environment. In setting our interest rates, we are acutely aware that we have responsibilities to these customers as well as to our borrowers. (For this reason, for example, we always try to retain a special term deposit offering an attractive rate of return.)

This year we have seen interest rates fall six times in just ten months. Every time there is a change, we must weigh up the effect on our depositors when setting the date of reductions for borrowers. On some other occasions this year, Bendigo has been able to pass on reductions to borrowers within two weeks. This time we needed a little longer to balance our responsibilities to term depositors with whom we have already contracted terms of investment.

We are also mindful of our responsibilities to businesses in communities in which we operate. For this reason, we have on each occasion this year passed on reductions to business customers at the same time as home loan customers. As the engine room of job creation and prosperity in Australia, we believe the small business sector is particularly deserving of support also.

We understand that home loan borrowers might question the timing of our latest rate reduction, but we believe we have fairly balanced our responsibilities across the communities we support. Naturally, though, interest rate settings are of vital interest to all our customers and our Pricing Committee will continue to debate a wide range of views and responsibilities when formulating our interest rate pricing.