Cba Joins The Party On Home Rate Rises
The Age
Thursday January 10, 2008
COMMONWEALTH Bank's decision to raise home loan interest rates makes increases by other lenders a near certainty.
The rise is on top of the Reserve Bank's November increase of a quarter of a percentage point, or 25 basis points. Despite being seen as one of the big banks least exposed to increased funding costs since the US credit crisis spread to the world's debt markets in July, Commonwealth Bank has increased its standard variable rate by 10 basis points to 8.67%. Non-bank lender Virgin Money also raised its variable home loan rate by 25 basis points, to 8.09%. CBA said additional funding costs had cost it $100 million since the credit crisis started, and it flagged more rises if the funding situation did not stabilise. The head of retail banking, Ross McEwan, said: "While a higher increase could be justified, we believe that the current level of wholesale funding rates will moderate from the high level experienced pre-Christmas." About 71% of CBA home loans are variable rate and the increase will add about $20 to monthly repayments on the average loan. National Australia Bank last week raised its variable rate by 12 basis points and on Monday ANZ raised its variable rate by 20 basis points. Treasurer Wayne Swan labelled the ANZ rise excessive. "Ultimately, banks will be judged harshly by their customers in a competitive market for any excessive interest rate increases," he said. But analysts have backed the moves. Macquarie Bank's Tom Quarmby estimated a rate rise similar to NAB's would net the five big banks a profit increase of 1-2.6%. He predicted this week that most banks would use the NAB move as a trigger to increase their rates. He also said that bank customers had experienced significant interest rate increases above official interest rate moves in other products such as fixed mortgages (up 20 basis points), credit cards (up 40 basis points) and variable business loans (up 25 basis points). Major banks' borrowing costs have increased by 0.3-0.4% since widespread concerns about US subprime mortgage defaults gripped the market. CBA increased rates despite having one of the highest levels of household deposits compared with its total loan book. Fujitsu Consulting principal Martin North said CBA had a large deposit base, giving it a cheaper source of funding than banks borrowing money on the wholesale market. He said that smaller institutions with lower credit ratings and low levels of deposits faced more interest rate pressure. John Miles, the head of financial institutions for ratings agency FitchRatings, said there would be little reprieve from rates rising to reflect increased funding costs. "I would say it's going to be pretty much across the banking board generally," he said. "When you look from bigger banks to smaller banks, all of them have been relying on wholesale funding more."
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