Unprecedented times': NAB's Mike Baird justifies rates decision

National Australia Bank executive Mike Baird says "unprecedented" conditions in banking are making it increasingly tough to balance the interests of borrowers and savers, as he sought to justify an interest rate decision that prompted an accusation of "profiteering".

Amid warnings rival banks could be forced to cut dividends as margins come under pressure and compensation costs mount, the former NSW Premier on Thursday also said that by remaining profitable, banks would be able to continue supporting the economy by lending to businesses.

Mr Baird's comments come after a backlash over the banks' decision to not pass on the full Reserve Bank interest cut with Prime Minister Scott Morrison, saying the banks were "basically profiteering".  Treasurer Josh Frydenberg urged customers to shop around and said the banks had "a lot of explaining to do".

As smaller banks including Macquarie, Suncorp and ME Bank joined their larger rivals by delivering borrowers a partial rate cut, Mr Baird sought to explain why NAB was not passing on the full value of this week's 0.25 percentage point rate cut to most borrowers.

"We are in unprecedented times, with home loan, deposit and savings rates at historic lows," Mr Baird, NAB's chief customer officer for consumer banking, said in a statement.

“With three cash rate cuts in five months and more predicted, it’s increasingly difficult to balance the needs of all our customers."

NAB on Tuesday cut most mortgage rates by 0.15 percentage points and interest-only investor rates by 0.3 percentage points, and its key rivals ANZ Bank, Westpac and Commonwealth Bank have also defied the government and only passed on some of the official rate cut.

The comments from Mr Baird came as analysts from Morgan Stanley made a fresh prediction that ANZ Bank and Westpac would be forced to cut dividends, partly in response to ultra-low interest rates.

The analysts led by Richard Wiles cited "pressure on profitability due to lower rates and more onerous capital requirements," as they predicted dividend cuts from the two banks.

Analysts and fund managers said the decline in interest rates was a growing threat to the industry's profits, because it is getting harder to offset cuts in lending rates by lowering already rock-bottom deposit rates. The result is a crunch on net interest margins, which compare funding costs with lending rates.

Australian Banking Association chief executive Anna Bligh on Thursday said savers were now getting the lowest ever return on savings, citing average term deposit rates of 1.3 per cent last month.

"Strong, stable and profitable banks are critical to both a growing economy which is creating jobs and a free flow of credit which helps Australians buy their own homes," said Ms Bligh, a former Queensland premier.

Chief investment officer at Atlas Funds Management, Hugh Dive, said: "As rates come down, it's increasingly hard to maintain that 200 basis point margin when the cash rate is 0.75 per cent." Mr Dive said he thought Westpac was most likely to cut dividends of the big four. Other major banks were less likely to cut payouts but it would be influenced by a looming decision capital requirements in New Zealand, he said.

Head of fixed income and multi-asset at Schroders, Simon Doyle, said there was a "tension" between the political pressures on banks and the financial realities.

"The challenge for banks is they are also coming to grips with a low and declining interest rate environment, and there's a lot of political pressure on the banks as well, when you get rate cuts, to pass that through, when that's not reflective of their funding base," Mr Doyle said.

Compensation costs for past misconduct are also hitting bank profits, with Evans and Partners analyst Matthew Wilson on Thursday forecasting the big four could face more than $2 billion in pre-tax remediation costs next year. These pressures were underlined by NAB's $1.2 billion provision for customer compensation on Wednesday, a move that some believe is aimed at helping to prepare for the float of its wealth business MLC.

Choosing my Vegan Options at the Chosen Bean Cafe

There was talk in my local newspaper that the Chosen Bean Cafe had revamped itself. With a larger venue and expanded menu, the Chosen Bean Cafe was also keen to embrace its passion to please its customers. Such a warm embrace can now be enjoyed at this latest and spacious site.

There was promise that the expanded menu wanted to appeal to as many tastes, and dietary requests, as possible. Sure enough, healthy and nourishing menu choices were found and abound – from the all day brunch menu of mushrooms, granolas, panini, smoothies and more, to the scrolling chalkboard of specials hanging proudly above the sun-soaked sitting area.

As the earthy aroma of the Chosen Bean Cafe’s rich coffee blends wafted from the grinding hum of its robust espresso machine (beans are roasted here onsite!), an almond milk latte – straight up – was ordered right away. It’s one thing to order a coffee in Melbourne, yet it’s a sublime experience sipping nature’s nectar with a plant-based milk. For me, it’s as nature had intended. Here, the Chosen Bean Cafe sees coffee as an art-form rather than a quick fix. I’d read that a cold drip coffee could also be ordered here, too. Yet, I decided it was a choice best left for the warmer months; a great excuse to return and sit back in the lazy sitting area outdoors.

Even on a busy late Sunday morning as this, my order was efficient in its arrival and brimming with nourishing green goodness. Pleasing customers with various dietary requests can be a balancing act, though the Chosen Bean Cafe has tapped into it finely with wholesome flavours. One of the day’s specials caught my eye early and arrived at the table exceeding expectation. Crowning two slices of seeded, gluten-free toast I found a bright and articulated bouquet of steamed veggies; sourced from the Yarra Valley that’s only a stone’s throw away.

Broccoli flowerettes, asparagus spears, lightly wilted spinach and alfalfa shoots sat snugly near a thick smearing of avocado hummus and peppered by toasted pine nuts, sesame seeds and pepitas. A wedge of lime, anchored on the plate by the hummus, was longing to be squeezed over the meal. A dollop of almond feta peeked from underneath the spinach as I grazed on little sweet potato crisps found floating within. With a drizzle of olive oil, my flavourful brunch was eaten with care, so as not to waste a moment in enjoying these fresh and nourishing vegan flavours. Choosing the vegan option at the Chosen Bean Cafe did not disappoint!