http://au.biz.yahoo.com/090612/2/26us8.html
CBA raises home and business loan rates
Friday June 12, 2009, 1:28 pm
Commonwealth Bank of Australia Ltd (CBA) will raise the interest rates on its home and business loans by 10 basis points to offset higher funding costs.
The rate on its standard variable loans will rise to 5.74 per cent, from 5.64 per cent, from Monday June 15.
Interest rates on a range of its fixed home loans and its Residentially Secured Better Business Loan will also rise by 10 basis points from Monday.
The increase in fixed rates does not affect existing customers.
"This is a decision the bank has made reluctantly," CBA group executive of retail banking services Ross McEwan said in a statement on Friday.
CBA is the first major bank in Australia to lift interest rates on its mortgages since the Reserve Bank of Australia (RBA) commenced cutting the official cash rate in September 2008.
Since then, the RBA has cut the cash rate by 425 basis points to a current three per cent.
CBA head of retail products Michael Cant told AAP the bank was still the most competitive player in the market for home loans.
"Our rate is still the lowest of all major banks," he said.
CBA cited increased wholesale funding costs and the cost of funding deposits as the reason for its interest rates decision.
Treasurer Lyn Cobley told AAP the bank raised between $31 billion and $32 billion in term funding in fiscal 2009 and will need to raise around $30 billion in fiscal 2010 to fund the expansion in its retail loan book.
The price of raising funds from offshore wholesale markets was still 12 times higher than it was prior to the credit crisis, she said.
She said the price of raising funds in the domestic market was between 120 basis points and 130 basis points above the bank bill swap rate.
"In the offshore markets depending on where you access them, they could be anywhere from 20 to 50 to 70 basis points more," she said.
"The cheaper funding we had in the book prior to the crisis is rolling off and is being replaced by this more expensive source of funding," Ms Cobley said.
CBA anticipates the process of rolling over term funding deals struck before the credit crisis began will continue for at least another 18 months.
Mr Cant said the average term of the bank's long-term funding deals was between three and 3.5 years.
He said cash to bill spreads had started to ease over the last two months, but the average cost of funds across the loan book is still rising.
CBA says it is facing very high costs in funding its deposits as an intense price war continues between the banks.
"There is a huge price war going on in deposits at the present time," Ms Cobley said.
She said she could borrow funds at a cheaper rate in the wholesale markets than from retail customers.
"That is really an extraordinary turn of events and is an outgrowth of the credit crisis where you have certain players that are trying to bolster up their balance sheets with higher percentage of deposit funding.
"For some players getting access to cost effective wholesale funding has become extremely difficult.
"So we're actually being hit in our cost of funds on both the wholesale side and the retail side."
Mr Cant said the bank has "no immediate plans" to raise the interest rates on deposits after lifting its interest rates on home and business loans.
Interest rates on deposits would be under review, he said.
CBA is Australia's largest lender across both the home loan and business loan market.
Mr Cant said the bank's market share of the home loan market was currently around 21 per cent.
The Australian Prudential Regulation Authority (APRA) put CBA's market share of the mortgage market at 25 per cent to April 30, its share of the business loan market at 19 per cent and its share of the total lending market at 25 per cent.
CBA is also Australia's biggest deposit holder with a 25 per cent market share to April 30, APRA said.
Meanwhile, both the NAB and ANZ have said their mortgage interest rates are constantly under review but there are no specific plans to change them at this stage.