National Australia Bank Ltd (ASX: NAB) has just announced it’s going to increase the interest rate on home loans for owner occupiers and investors.
NAB is one of the four largest financial institutions in Australia in terms of market capitalisation, earnings and customers. However, in 2018, it was Australia’s largest lender to businesses and has operations in wealth management and residential lending.
NAB increases interest rates
NAB is increasing the interest rate for most borrowers by 0.16% per year, except owner occupiers on principal and interest repayments, which will see a 0.12% increase.
Many of NAB’s customers may feel aggrieved considering the bank had said only a few months ago in September it would hold the rate for as long as possible to win some brownie points after the Royal Commission.
NAB defended the decision by pointing out that other banks, like Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: ANZ), did increase their rates at the time but it didn’t.
NAB Chief Customer Officer of Consumer Banking Mike Baird said:
“Our decision to hold our Standard Variable Rate since September last year, the only major Australian bank to do so, has led to around $70 million remaining in the households of more than 930,000 NAB customers.”
NAB blamed increasing wholesale funding costs as the reason for today’s announcement. The Reserve Bank of Australia (RBA) certainly didn’t cause today’s hike, as it has held the interest rate for many months.
According to NAB, a borrower with a $300,000 loan will be charged $264 more per year if they’re an owner occupier with principal & interest repayments, while a investor on an interest-only loan will pay $480 more per year.
Is NAB a buy?
NAB shares have gone from in the red earlier today to now 0.12% up at the time of writing, so investors seem to be slightly pleased by this news.
It should have the effect of boosting profit if NAB don’t lose any borrowers moving to another bank for a cheaper loan rate.
NAB’s dividends over the past year amount to a fully franked dividend yield of 8%. This looks very generous and appealing if it isn’t cut over the next few years.
I fear there is a chance of a dividend cut if there are more negative repercussions from the Royal Commission or the housing market continues to plunge for the rest of the year.
One of the shares in the free report below could be a more reliable choice than NAB for dividends and growth.
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