Two of Australia's big 4 banks have yielded to pressure from Treasurer Wayne Swan for them to reduce their mortgage interest rates following the May 1 decision by the Reserve Bank of Australia (RBA) to cut the overnight cash rate by 50 basis points to 3.75 per cent.

However, the National Australia Bank (NAB) and Commonwealth Bank of Australia (CBA) reduced their mortgage rates by only 32 and 40 basis points, respectively, in effect withholding 18 and 10 basis points.

With this development, CBA's standard variable rate is now 7.01 per cent, while NAB's is 6.99 per cent which is the lowest among the big 4. By withholding 18 basis points, NAB stands to gain $16 in profit monthly for every borrower with an average mortgage of $300,000.

The CBA and NAB rate cut takes effect Friday, May 11. CBA said its interest rates for deposits are still under review.

For each day that the big 4 fail to pass in full the 50 basis points overnight cash rate, these four lenders would enjoy a $12 million profit increase daily, according to a study by the Australia Institute.

CBA justified its move, saying in a statement that the 40 basis points rate cut balanced the needs of 1.8 million customers who have mortgages with the bank and 11 million depositors.

The bank's explanation was immediately criticised by Mr Swan who insisted that banks could afford to pass the 50 basis points cut made by the Australian central bank.

NAB said despite the cuts being less than the 50-basis points reduction made by the RBA, the move would still save Aussies who have loans $80 a month interest on an average mortgage value of $300,000.

"We will continue to offer a fair exchange of value, balancing rising funding costs, the needs of our existing customers and our ability to continue lending to home owners and businesses," NAB Group Executive of Personal Banking Lisa Gray said in a statement.

With the cut in variable mortgage rates, NAB would also reduced interest rates on online savings account iSaver by 0.5 per cent to 5 per cent, and consumer credit card interest.

By refusing to pass in full RBA rate cuts, the big 4 is expected to enjoy a total of $25 billion in profits for 2012. On Wednesday, ANZ - which will announce its interest rate decision on May 11 - reported a net profit of $2.92 billion for the six months to March 31. It is higher by 10 per cent from the previous six months data.

ANZ Chief Executive Mike Smith pointed out that 800,000 mortgage holders would benefit from a rate cut, while 3 million ANZ depositors would be negatively affected by the benchmark lending rate reduction.

He justified the profits made by banks, which he said is an indicator of an economy that works.

Westpac registered a $3.195 billion profit for the six months to March 31, which is up 1 per cent compared to a year earlier and slightly higher than economists' expectation of $3.12 billion. However. Westpac Chief Financial Officer Phil Coffey did not comment on the impact of the lender's earnings on its interest rates.

ANZ's Mr Smith said beyond RBA rate cuts, what the Australian economy needs is real stability and consistency to create confidence.

"Quite clearly the situation in the economy was more severe than they probably first thought.... But when you're looking forward through a very opaque windscreen it's a very difficult call," Mr Smith told The Sydney Morning Herald.

Outside the big 4, the Bank of Queensland reduced mortgage rates by 25 basis points and kept 15 basis points. Stuart Grimshaw, the chief executive of the bank, pointed to economic uncertainty as the basis for keeping the 15 basis points.

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