Banks this week continued to resist pressure to reduce lending rates, including mortgage bonds.
This is in spite of record margins between banks' borrowing and lending rates and indications by Chris Stals, the governor of the Reserve Bank, that the time is ripe for rates to come down.
An announcement by First National Bank that its profits were up by 28,5 percent for the year to March was further confirmation of the large profits the banks are making. On the strength of this shareholders were given a 20 percent tax-free dividend increase.
The last time interest rates were altered was in March this year, when the prime lending rate was cut by one percent to 18,25 percent and the average home loan rate to 18 percent.
Meanwhile the repo rate, (the rate at which banks borrow money from the Reserve Bank), dropped to its lowest level since its introduction in March, but bank managers shrugged off suggestions that this could trigger interest rate cuts.
While the repo rate drop may be insignificant, it should be seen in against the background of a one percent interest rate cut for borrows, while savers have had to accept a two percent cut in deposit rates (call rates) this year.
This information was revealed in a survey, by Fleming Martin Asset Management, which also questioned why banks were holding off against a rate cut when South Africa's real prime lending rate (the rate less inflation) was testing highs not experienced since World War II.
A First National Bank spokesperson would not comment on lending rates as the bank was busy announcing its interim results.
A Standard Bank spokesman said "we continually review our interest rates and the quality of our margins and will make a decision when the time is appropriate".
Fanie Leach, of Absa, which includes Allied, United, Trust and Volkskas banks, said Absa had no immediate plans to reduce rates, but was monitoring the situation.
He said Absa was "not comfortable" with a rate cut now."We don't want to drop prime the one day and move it up the next day. South Africans don't have the appetite for frequent small moves in rates," he says.
John Cruickshank, of Standard Corporate and Merchant Bank, says there is no fixed amount by which the repo rate must fall before the retail banks will reduce their rates to consumers.
"It is a trend which must be established," he says.
The repo rate, is determined by the banks' demand for money made available by the Reserve Bank, but the rate is no longer set by the Reserve Bank. Furthermore, banks obtain only a small portion of their funding via the repo system.
Alan Greenstein, of Mercantile Bank, said: "The decision on whether or not to lower the rates is one of such market competitiveness that there is no way that I could comment on whether Mercantile is even considering that or not."
Jimmy Forbes, Nedcor's general manager: treasury, says the repo rate needs to move downwards for two to three weeks "before we start seeing an effect on interest rates".
He says you should not forget to negotiate your own interest rate package with your bank.