CBA CEO says will raise variable rate more than RBA if needed

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Commonwealth Bank of Australia Ltd says it cannot guarantee that increases in interest rates for home lending rates won’t exceed those made by the central bank.

All big four banks have said that variable mortgage rates may have to rise faster than the Reserve Bank of Australia’s rate increases because of funding pressures.

“If we have to move standard variable above the OCR (overnight cash rate) then we will have to do that,” chief executive Ralph Norris said in a phone conference after releasing the bank’s September quarter earnings update.

“We’ve seen significantly higher levels of term deposit rates.

“If you look at wholesale margins, they’re still significantly up over where they were two years ago.”

He said the RBA’s cash rate no longer set retail or wholesale rates in the way it used to before the financial crisis started two years ago.

CBA, the country’s biggest home loan lender, and the other three major banks last week increased their standard variable mortgage rates by 25 basis points after the Reserve Bank of Australia (RBA) raised the cash rate by the same amount.

The big four banks did the same in October after the RBA’s 25 basis point increase at the time.

Mr Norris said deposits, one of the major sources of bank funding, were were now 0.75 to one percentage point more expensive for bank than before the global financial crisis.

CBA chief financial officer David Craig said it would take another 18 months before the average cost of wholesale funds stopped rising.

Wholesale funding is sourced from fixed interest investors here and overseas.

The average cost of funding has been rising for banks as they roll over cheap term debt sourced before the global financial crisis with more expensive borrowings.

While the cost of debt has fallen from the extreme highs at the height of the crisis, the cost is still higher than two years ago, which continues to raise the average cost.

The average term debt before the financial crisis was 3.6 years, with some of that having a maturity of five years, Mr Craig said.

“So we’ve got five years from the beginning of the crunch before the last of the cheap stuff’s gone,” Mr Craig said.

The cost was likely to stabilise at about three and a half years after the start of the crisis, he said.

CBA was criticised in June after it raised its variable rate by 10 basis points because of margin pressures.

After the increase it still had the equal lowest rate to rival National Australia Bank Ltd. Before the increase, CBA’s rate had been the lowest among the banks.

Since then, the RBA increased its cash rate twice by 25 basis points in October and November, taking its benchmark rate to 3.5 per cent.

AAP

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3 COMMENTS

  1. “Mr Norris said deposits, one of the major sources of bank funding, were were now 0.75 to one percentage point more expensive for bank than before the global financial crisis”

    What you forgot to mention Mr Norris is that since then CBA are still gauging approximately 0.90% off all it’s homeloan customers and an additional 0.25% from the Brokers, so I think your “shortfall” is well and truely paid for, and this gauging will pay for it many times over as it will never be returned to where it rightfully belongs.

    There is no GFC at CBA , just look at the lastest profits!

    Enough of this greed already

  2. *laughing* – I have just sent this CBA press release to all my clients and can guarantee NOT ONE of them will ask for a CBA finance in future.

    The CBA is doing a super great job of alienating itsef from the other big lenders and borrowers !!

  3. Congratulations Ray
    It is time we voted with our feet and let the big banks know that their attitude to customers and the Brokers that have helped them become the largest lender in Australia, is not acceptable.
    When they take some of a Brokers commission on the pretext of GFC and we do nothing about it we are actually telling the Bank management that we agree with their actions.
    When they increase rates by more than the RBA increase and borrowers and brokers accept that, they too are telling the Bank Board that that action was acceptable.
    Unless we let them know with our feet they will nevewr know how we feel about it.
    In fact we are almost saying we like it…
    Lets all band together and completely STOP putting loans to lenders that behave badly.
    There are some perfectly good non bank lenders out there that are prepared to do deals.

    Graeme

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