Repo vs prime

[WES]

When the repo rate is cut from 6 % to 5,5 % that is a decrease in the rate of 8,33 % for the banks. If our beloved banks cut the prime rate from 9,5 % to 9 % in prime it is a decrease of 5,56 %. So the cost that our banks borrow money from the Reserve Bank goes down by 8,33 % whilst their income received from us only goes down 5,56 %. It just seems to me that we, the poor consumer, is been nailed again, or am I missing something....

[XWolf]

Well... you could always argue that we're lucky when it goes in the other direction :P

[SimonPB]

well surely the solution is to buy bank shares ??

[CHATTYCHAT]

What should upset you more is that the gross margin is 38% at present. The consumer has to fight his cause by a his resistence to high price levels and a lesser apetite for expensive goods and services. Then, we are capilists - the bank have to make a profit, don't they. Something that's been irritating me, occurred (long days gone) since attorneys started adding 'postage and petties' to their professional account. This was followed by other professionals. Then banks added service fees. In my mind these costs are all overhead, but in reality found its way to the end user, having to pay for all bits and sh*t devised to smooth the profit margin. Or NOT?

[WES]

Yes, the GP is now 38 %, up from 25 % if the rates started to turn when prime was at 15 %. Nice business to be in. I agree bank shares are cheap. As far as attorneys go.....yeah that bloody petties and postage, who do they think they are fooling ?

[CHATTYCHAT]

Exactly - we watch and pay. But hell, it's like lying on the operating table and trying to negotiate the fee of the brain surgeon.

[WES]

lol...that is why they are called in Afrikaans ..."proko-rowers".

[CHATTYCHAT]

Huh-uh - die chirurg vra sy kollega "Waarvoor het jy die pasiënt gedoen?" Antwoord: "R10 000." Nommer 1: "Nee, man, jy verstaan verkeerd, wat het hy gehad?" Antwoord: "R10 000."

[#9]

Guys, guys let's try and turn this into an oppertunity. What can we borrow from who at the lowest interest rate possibille and then, what can we buy and where that we can sell later at a profit when the interest rate goes up? Example - Is it worth taking the cheapest loan possible and buying kruger rands only to sell them in 5 years time again at a major profit? Is this an option? What about diamonds. Should we buy some diamonds and put them in storage?

[prancing_horse]

Reminds me of a ? I was once asked. "If you had a 38special and two slugs, and there's a Surgeon, Minister and an Attorney, who would you shoot?" Very simple answer......use both on the Attorney to make sure the .......... is dead.

[olilau]

wes, if you consider that repo in basic terms is cost to the bank and prime is revenue, then it is the differential that determines the profit margin, which in all cases is 3.5%. when you get finance at prime "less x" the bank is discounting the prime rate to you, prime being an "indicator" of what the bank wants to lend at to its preferred customers. this is why you also get plenty loans at prime +, ie to those customers where the risk is higher. the bank is not varying the profit margin, the difference in percentage of the increase or decrease of repo/prime is merely a function of maintaining the profit margin. if anything, this is the right way of doing it. consider where you are in a business and your costs increase by 5%. if you pass on a 5% increase to your customers, citing increase in costs as a reason, you are actually MORE than covering your costs and the increase because your revenue is hopefully at a higher base than your costs.