Thursday, April 09, 2009

Brand Reputation Impact of not Passing on Interest Rate Cuts For Major Australian Banks: Classic Pay-Off Matrix Logic

So consumers and businesses are unlikely to benefit from the 0.25per cent interest rate cut ordered by the Reserve Bank of Australia.

Banks say they cannot afford to pass on the benefit.

For example, The National Australia Bank declared it would not change its standard variable mortgage rate, the Commonwealth Bank, Westpac and ANZ will only lower rates by only 0.1 percentage points.

Interest rates on standard variable mortgages offered by Australia’s big four banks now stand at 5.64 per cent for Commonwealth Bank, 5.74 per cent for NAB, and 5.81 per cent at both Westpac and ANZ. The lowest in 60 years.

The move has been criticised by the Australian Government for not passing on the full rate cuts.

So what does all this mean to the corporate reputations of the banks?

Do you pass on the full rate cut and build your brand and reputation?

Or is it all about business, margins and return to shareholders?

Can interest rates be a differentiator for banks?

Well, my view is that banks are in a no-win situation. Bank bashing is a common approach.

From a reputational point of view, from a PR perspective and from a marketing and differentiation point of view, the business case of staying profitable wins out.

This is my reasoning:

1. The reductions are small and not likely to have a major impact on an average home loan. Therefore the PR, branding and marketing opportunity is minimal in the minds of stakeholders.
2. The small impact does make a big difference to the profitability of the banks.

So it is a classic case of using a pay-off matrix to analyse the costs and rewards of passing on the interest rate cuts.

The rewards for the bank don't justify the costs in passing on the full cuts.

What is your view?

1 comment:

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