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Australia's biggest home loan lender, Commonwealth Bank of Australia, will reduce its mortgage rates by more than central bank cuts once markets return to normal.
"Once we get back to a normalised market situation ... you can expect to see reductions by the Commonwealth Bank which will be
ahead of the Reserve Bank [of Australia]'s OCR [overnight cash rate] and out of cycle decreases," chief executive Ralph Norris said yesterday.
He was speaking after CBA agreed to buy Bank of Western Australia (BankWest) and St Andrew's Australia from their UK based parent, HBOS, for A$2.1 billion ($2.34 billion), to boost the bank's position as Australia's biggest.
CBA, together with the other banks, has increased the margin of its standard variable home loan rate over the RBA's cash rate as global credit rates surged.
After Tuesday's RBA rate cut, which CBA didn't pass on in full, the bank's variable home loan rate spread over the cash rate will increase to 71 basis points.
But Mr Norris said CBA's profit margin on home loans over the past 12 months was 16 basis points less than it had been before that.
"We have absorbed additional costs," Norris said.
The RBA cut the cash rate by 100 basis points on Tuesday, the most since May 1992, a reduction Norris said was surprising.
CBA cut its variable rate by 80 basis points.
"I was expecting a rate cut around 50 basis points," Norris said.
"I think the Reserve Bank took a view that the situation in global markets was deteriorating quite quickly. That's been perceived as a good decision and local markets reacted well to that."
Norris said the home loan sector was still competitive, despite the departure of non-bank lenders.
"Margins [on home loans] have either reduced, or at best, been maintained."
While CBA hadn't passed on rate cuts in full, it was important for the bank to maintain its strong balance sheet, Norris said.
He also said the benefits of a profitable CBA flowed through to both shareholders and wider public.
"I don't think a poor performing or unprofitable bank does anybody any good, and one of the problems in financial markets is the doubtfulness of many banks," Norris said.
CBA shares closed at A$45.15 on Tuesday. They were suspended from trading yesterday because of the takeover and share placement announcement.
- AAP