Canada’s big banks reduced their prime lending rates in the wake of the Bank of Canada’s unexpected move last week, but stopped short of matching the central bank’s quarter-percentage-point cut in a bid to protect profits.
Royal Bank of Canada (TSX: RY) was first to announce Tuesday that it would cut its rate by 0.15 percentage points to 2.85% on Wednesday. Toronto-Dominion Bank (TSX: TD), Bank of Montreal (TSX: BMO), Canadian Imperial Bank of Commerce (TSX: CM), National Bank of Canada (TSX: NA) and Bank of Nova Scotia (TSX: BNS) swiftly followed suit with identical cuts.
The prime rate drops came a week after the Bank of Canada lowered its overnight lending rate by 0.25 points, and amid mounting speculation that lenders were under pressure from Ottawa to pass along the central bank’s monetary stimulus. RBC was also the first to slash five-year fixed-rate mortgage rates over the weekend, as Government of Canada bond yields touched record lows.
But banks had held off touching their prime rates, drawing the ire of consumers who had expected lower rates on their variable-rate mortgages, lines of credit and loans.
But in lowering their prime rates, banks opted not to fully match the central bank rate cut, choosing instead to protect their profit margins as spreads between the rates at which banks borrow and lend money have bottomed out.
With retail lending growth slowing amid a drop in oil prices, banks have been under pressure from shareholders to boost their profits by 10% a year, a tough target. Some had begun slashing expenses in order to shore up profits even before the central bank rate cut.
