The major banks could face an exodus of borrowers following moves by several small lenders to pass on the full benefit of the Reserve Bank’s 0.25 per cent official rate cut.

As Prime Minister Malcolm Turnbull calls on the country’s big banks to justify why they only passed on part of the official rate reduction, leading second-tier banks such as Bank of Sydney and Bank Australia revealed they would deliver the full cut on their standard variable mortgages.

Melbourne-based Bank Australia, which has about 127,000 customers across the country, will lower its standard variable rate to 4.74 per cent from 4.99 per cent.

That is more than 0.5 per cent cheaper than the base mortgage rates of the four major banks that were adjusted to an average of 5.22 per cent on Tuesday.

Bank Australia’s rate cut will take effect from 5 August.

The major banks are under fire for “putting shareholders ahead of customers”. Photo: AAP

Bank of Sydney will lower its variable rate mortgage to 3.63 per cent from 3.88 per cent.

PM demands banks pass on full official cut

In a significant departure from Treasurer Scott Morrison’s cautious reaction to the failure of major banks to pass on the RBA cut, Mr Turnbull turned on the blowtorch.

“The commercial banks should pass on the full rate cut – they should pass it all on,” he said.

“They should do that, and if they are not prepared to do it, as appears to be the case, then their chief executives should explain very clearly to the Australian people and their customers why they have not done so.”

Mr Turnbull said the banks should be made fully accountable for their decisions.

Malcolm Turnbull has called on the major banks to pass on the full rate cut. Photo: AAP

“They operate with a very substantial social licence, and they owe it to the Australian people and their customers to explain fully and comprehensively why they have not passed on the full rate cut – and they must do so,” he said.

None of the four major banks – NAB, Commonwealth, ANZ and Westpac – have given reasons for denying borrowers full rate relief.

Mr Turnbull’s comments indicate that the government might begin hardening its rhetoric against the big banks in an effort to cajole them into meeting community expectations.

Nick Xenophon has taken aim at the major banks.

South Australian senator Nick Xenophon warned that he would introduce new legislation to improve competition in the banking sector if the government squibbed on reform.

“Right now the ‘four pillars’ are like a big brick wall when it comes to passing on the full extent of rate cuts to consumers,” he said.

“If only the banks were as quick in cutting rates when they go down as they are at increasing them when the cash rate goes up.”

Small banks set to lower credit card rates

None of the major banks have announced any cuts to credit cards, but customers of second-tier lenders are in line to receive the full benefit of the RBA cut on these products as well.

Bank Australia managing director Damien Walsh told The New Daily that his bank would be passing on the full official rate reduction to all credit card holders and customers with personal loans from 5 August.

Bank Australia will be passing on the full official rate reduction to all credit cardholders

“We are one of the fastest-growing banks in the country and we are committed to being competitive on rates because we are customer-owned,” he said.

Bank Australia’s low-rate Visa card will be lowered to 9.39 per cent from 9.64 per cent, making it one of the cheapest in the Australian market.

Financial product research companies such as Mozo are expecting a raft of small lenders to announce cuts to lending rates on Thursday.

“We think more small lenders will come out over the coming days with competitive cuts, and we expect to see the gap widen further between the big four banks and the smaller lenders,” said Mozo director Kirsty Lamont.

“Even before the rate cut, the most competitive variable rate was 3.59 per cent, which is well below CBA’s 5.22 per cent, the best of the big four after Tuesday’s cut.”