The Commonwealth Bank has been able to sneak an extra 0.25%, or one whole official RBA rate rise, in its trio of rate increases for mortgages starting in January.
Yesterday’s hike in its standard variable home loan rate by 0.35% – 0.10% more than last week’s official cash rate rise takes to 0.75% the increases the CBA has been able to push through.
The figure is made up of 0.10% in early January, 0.30% after the rate rise on February 5 from the RBA of 0.25% and yesterday’s increase.
In contrast, the National Australia Bank has managed an increase of 0.66%: 0.12% in early January, 0.25% in February and 0.29% last week after the RBA’s decision.
The CBA said its standard variable home loan rate will rise to 9.32% from 8.97%, from Wednesday.
The CBA is also being skimpy on its deposit rates.
It said yesterday that "The deposit interest rate on the NetBank Saver and Business Online Saver accounts will increase by 0.25% pa, effective 12th March. The applicable interest rate for the NetBank Saver account is now 7.00% pa and Business Online Saver moves to 7.15% pa."
Well, you can get 8% from Citibank and 8.05% from Rabobank, for the online accounts. ING Direct pays between 8% and 8.10% for online deposits of 180 days plus.
In a statement attempting to justify the higher rate rise, the bank’s head of retail, Ross McEwan said the bank could no longer absorb the increased cost of its own borrowings.
He said in the January announcement statement that the bank had to wear an extra $100 million of extra funding costs as a result of the impact of the credit crunch.
"The Commonwealth Bank has absorbed a significant proportion of the increased funding costs that it has experienced since August 2007," he said.
"Unfortunately, the volatility in global markets remains and we have seen funding costs continue to increase, particularly since February as funding from global markets has become tighter and as a result more costly."
Mr McEwan noted the Reserve Bank’s warning last week that banks may have to cut back on funding if international markets tighten further.
The CBA was committed to remaining in this market however interest rates charged to clients needed to reflect the increased costs in funding to allow it to continue to do so, he said in a statement.
"Despite this latest increase, which can be directly attributed to the increased cost of funding experienced by all banks, we are still maintaining a balance between the needs of shareholders and customers by continuing to absorb a significant portion of the additional costs being incurred."
The bank also announced it had discontinued the share purchase to neutralise its dividend reinvestment plan. That will have the effect of increasing capital by about $400 million, enabling the bank to continue to support its customers and consider opportunities that may arise, it said.
That is disingenuous as the on market share buybacks for the DRP were done to limit the dilutionary effect of the DRP, which annoyed big investors and their broking analyst mates.
Small investors like DRPs like the CBA’s. Now the CBA needs more capital, it makes sense to stop spending it to keep big shareholders happy.
Already other major banks have passed last week’s Reserve Bank increase and added a few basis points of their own to claw back some of the increased cost of funds.
From this week Westpac customers will be hit with a 9.27 % standard variable mortgage rate, an increase of 0.30%.Westpac has in total snuck through an extra 0.20% in its rate rises in January, February and last week.
The ANZ Banking Group Ltd is yet to announce a rise, while St George Bank Ltd has signalled it is considering a 0.40% increase. If St George does that it will have snuck through a rate rise of 0.35% on top of the RBA’s 0.50%. St George lifted rates 0.20% in January and 0.25% last month.
It is now the high cost bank among the five majors if it goes as far as 0.40%.
