Bank defends its pricing of mortgages

Westpac says the major banks' cost of funds has fallen about 200 basis points less between July 2008 and March this year than the average level of Reserve Bank governor Alan Bollard's official cash rate (OCR) over the same period.

It also estimates pre-tax profits from banks' retail operations are down 40% in the year ended March.

Westpac is basing its calculations on the major banks' quarterly general disclosure statements (GDSs) over that nine-month period (Westpac is the only major bank not to have published its March quarter GDS yet).

It says net interest margin, measured as interest income less interest expenses as a percentage of interest-bearing assets, has fallen from 2.28% in December 2007 to 2.17% in December 2009.