Commonwealth Bank of Australia Ltd chief executive Sir Ralph Norris says he would be surprised if banks raise home loan rates faster than increases to the official overnight cash rate.

“If you look at interest rates, the governor of the Reserve Bank has made it very clear that the emergency setting of three per cent for the official cash rate is unlikely to stay and there will be an upward move in rates over time,” Sir Ralph told journalists on Wednesday.

“I would be surprised if that were the case” he said, when asked whether mortgage rates would rise faster than the cash rate.

Australia’s big four banks were criticised earlier this year because their cuts to mortgage rates weren’t as low as the Reserve Bank of Australia’s (RBA) cuts to the official cash rate.

The RBA reduced the overnight cash rate from 7.25 per cent to a 49-year low of three per cent between September last year and April this year.

The banks, including Australia’s biggest lender CBA, cited the increased cost of funding from overseas as the reason for not passing on the full rate cut, as they had done in earlier cycles.

“As far as funding costs are concerned, they’ve obviously gone up quite significantly … since the beginning of financial crisis for wholesale money,” Sir Ralph said.

“What we’re seeing now is the marginal cost is falling but the average costs are still increasing and that’s because they’ve come off a very low base.”

In June, CBA became the first bank to raise variable home loan interest rates since the economic downturn, increasing its standard rate by 10 basis points.

CBA’s standard variable rate, at 5.74 per cent, is still one of the lowest among the big four banks, equal with National Australia Bank Ltd.

ANZ Banking Group Ltd and Westpac Banking Corporation’s rates are at 5.81 per cent.

Sir Ralph said the Australian economy was in good shape, although there were still potential risks, and his bank would need more time before it can start considering whether it has excess capital to cover bad debts.

“I’d need another six months to form a view on” whether the bank can start returning capital to shareholders, Sir Ralph said.

“I’m very happy with the level of Tier 1 capital.”

Tier 1 capital is the amount of cash or liquid assets a bank is required to hold to meet its lending obligations.

CBA’s Tier 1 capital ratio was at 8.07 per cent as of June 30.

Mr Norris said the risks to the Australian economy were mainly from offshore sources.

“I’m very much concerned about the global issues, particularly around the US and the UK,” he said.

“The Australian economy is in pretty good shape, but I’m cautious that we don’t see further bumps in the road from those economies that do have an impact on our economy.”

Shares in CBA declined 35 cents, or 0.67 per cent, to close at $51.75.

AAP