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.