Bank margins under pressure: KPMG
KPMG's Financial Institutions Performance Survey (FIPS) suggests there is "increasing pressure" on margins as the official cash rate falls close to zero, at 0.25%.
The report says deposit funding "has limits which are required to keep the flow of funds, meaning that banks will only be able to reduce the deposit rates up to a certain point".
Speaking to TMM Online, KPMG's John Kensington said the downward pressure on interest rates would make it difficult for banks to drop mortgage rates much further.
"They borrow at a rate, and they need to make a certain margin to cover operating costs. The cost of borrowing, plus the margin, will define where the cost of lending goes. If rates have already been re-pegged since the reduction in the OCR, it's probably as far as they can go down, unless there is a further reduction in global interest rates, which causes their own borrowing costs to go down."
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