According to a report in the Financial Review the big four are expecting to see a drop in demand for both mortgages and business loans over the next half a year.
Information provided by the Australian Bureau of Statistics suggests that demand for home loans had increased by just 0.5 per cent in August 2010, indicative of a drop in demand from home buyers as well as investors.
Banks are also worried about the erosion of profit margins in finance and how their profitability will be affected by a drop in demand in the coming months.
Margins are being squeezed because banks are being forced to pay higher interest on savings accounts.
In addition, the cost of funds is ever increasing. It seems that home loan funders will be looking to recoup their costs by interest rate increases irrespective of any decisions by the RBA. At this stage the market is confident that the RBA will not announce any changes to the interest rates in their meeting next week.
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