HONG KONG – MAY 23: Looks about right (Photo by Jessica Hromas/Getty Images)

Each time the Reserve Bank of Australia (RBA) cuts interest rates, customers wait to see whether their own bank will pass on the savings to them via a cheaper home loan. Often, however, any cut is passed on only in part or is delayed.

By doing so, Australia’s big four banks have pocketed more than $3.8 billion since 2016 — money that could have otherwise eased the cost of living for their customers.

With the RBA having decided to cut rates again in July, the banks have again pocketed millions of dollars by not passing the full cut onto customers or delaying the rate change.

On Tuesday, the Reserve Bank of Australia (RBA) cut the official cash rate to 1%, its lowest level in history.

While the level might be unprecedented, what happened next seemed like a story as old as time. Homeowners and investors waited to see whether in turn their bank cut its interest rate and, almost invariably, any cut was partial, delayed or non-existent. Among Australia’s major banks for example, the latest cut will only be passed on in full by ANZ, after it partially passed the last one. Even then, ANZ has inexplicably delayed the new reduction by 10 days.

Why would banks do this? Because the big four — NAB, ANZ, Westpac, and the Commonwealth Bank — have literally made billions of dollars from sitting on their hands. $3.86 billion to be exact since 2016, according to the latest analysis by comparison site Mozo.

“We’re talking about pretty short periods of time and relatively low-interest rates but because of the size of the loan books that they hold, it all adds up very quickly,” Mozo’s Banking Expert Peter Marshall told Business Insider Australia.

By passing on only part of a rate cut, the big four banks have pocketed an extra $125 million per month on average over the last three years between them, according to Mozo’s estimates.

In delaying a rate change, they’ve made an extra $221 million over the same period.

While banks aren’t legally required to pass on RBA interest rate movements at all, those billions of dollars are being made at the expense of their customers.

To be precise, if the June cut had been passed on in full, customers with a regular $400,000 owner-occupier loan would be $57 on average better off each month. That would have been welcome relief for Australian households which are already under pressure.

“When you consider that last month ANZ and Westpac pocketed a $193 million annual windfall by holding back some of the official rate cut, it’s hard to see the other big banks staring this gift horse in the mouth again,” Mozo director Kirsty Lamont said, ahead of NAB, Westpac and the Commonwealth Bank all deciding to hold off on the full rate cut.

Their reluctance to pass rate relief on is no doubt due to the infamous lack of competition in the Australian banking sector. Around 80% of home loans in Australia, after all, are held by one of the big four.

While Marshall says there is some legitimacy when banks complain their margins are under pressure, that’s likely to carry little weight with their customers, especially less than a year on from the financial services royal commission handed down its findings of misconduct in the sector.

Frustration is likely to only exacerbated by the fact that Australia’s big four have historically been some of the world’s most profitable banks.

What’s more is even when banks do move, they are prone to delay. That’s despite there not being any logistical barrier to implementing a cut immediately, according to Marshall.

“The banks would point to taking time to change systems but I don’t think anyone buys that argument anymore. No one was surprised about the July rate cut and with technology, there’s no reason why they can’t change their rates immediately,” Marshall said.

With a third rate cut largely forecast for later in the year, Marshall says the next one is unlikely to be passed on at all given banks are running out of space to trade off the difference between deposit and home loan interest rates. In other words, banks can only reduce the interest they pay on deposits by so much to offset the interest they charge on loans.

“The banks won’t be able to cut their deposit rates by another 0.25% which puts them in a difficult situation where they’ll have to decide whether they can afford to cut home loan rates any further,” Marshall said.

Given their history over the last three years, none of the big four’s customers will be surprised at any rate.

Business Insider Emails & Alerts Site highlights each day to your inbox. Email Address Join

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.