After the second rate cut in two months, three of the biggest banks in the country decided not to pass the full 0.25% reduction announced by the Reserve Bank of Australia (RBA).

Commonwealth Bank (CommBank), National Australia Bank (NAB), and Westpac announced partial cuts to be passed on to home-loan customers, leaving Australia and New Zealand Banking Group (ANZ) as the only one of the Big Four to pass on the rate cut in full.

So why are investors not receiving the full benefit of the discount? Essentially it boils down to funding. About 60% of banks’ funding comes from deposits, which is split roughly 50-50 between online savings account and term deposits. There is little room to move any lower on savings accounts, which currently offer very low returns of less than 0.5%.

Therefore, banks needed to hold onto some of the rate cut to make up for a decline in profit.

CommBank announced a 0.19% cut for homebuyers with principal-and-interest loans, and the full 0.25% cut for interest-only borrowers.

“We have carefully considered how to respond to this latest official interest rate cut, given that it is not possible to pass on the full rate reduction to over $160bn of our deposits, including deposits where interest rates are at or already near zero,” said CommBank group executive of retail banking services Angus Sullivan.

Meanwhile, Westpac said it would pass a 0.20% cut for owner-occupiers and 0.30% for investors with interest-only loans.

The decision reflected “the pressures of the declining cash rate in a historically low interest rate environment,” said Westpac chief executive David Lindberg.

NAB announced a 0.19% reduction on its Tailored Home Loan, on top of the 0.25% cut last June.

Before the decision on Tuesday, NAB acting chief executive Phil Chronican said it was becoming impossible for banks to offset the drag of falling interest rates on loans by cutting the returns they offer depositors.

“In making this decision, we have also considered our customers who rely on income from deposits, including farmers and growing numbers of retires, as well as those wanting to build their savings,” NAB chief customer officer for consumer banking Mike Baird.

Shares in all of the big banks declined after the RBA rate cut announcement on Tuesday, with ANZ shares fell 1.6%; CommBank shares down 1.7%, NAB shares declined 1.4%, and Westpac shares losing 1.6%.