CBA’s rate hikes pay off

THE Commonwealth Bank has chalked up $2.65 billion in first-quarter earnings as it reaps the benefits of its move this year to hike rates on interest-only home loans.

Australia’s biggest mortgage lender revealed yesterday that its cash earnings – a measure of underlying profitability – jumped 6 per cent in the three months to September from the same quarter last year.

The growth was partly driven by “asset repricing”, the bank said. In June, the CBA joined the other big banks in hiking rates on interest-only home loans while trimming rates for owner occupiers who pay principal and interest.

The bank said yesterday that it also kept a lid on bad lending during the September quarter, labelling its credit quality “sound”, despite concerns among some analysts about loan quality in Australia.

Home lending at the CBA rose at an annualised rate of 2.7 per cent compared with the previous quarter.

This was “managed within

regulatory limits” designed to contain growth in the investment property market, the bank said.

In June, the CBA lifted rates on interest-only mortgages by 0.3 percentage points while trimming principal-and-interest rates for owner occupiers by 0.03 percentage points.

It came amid a concerted push from the industry regulator for banks to limit growth in lending to investors amid concerns the property market was overheating.

In March, the Australian Prudential Regulation Authority told banks to limit interestonly loans to 30 per cent of new mortgage lending.

Last year, it told the lenders to limit growth in investment property lending to 10 per cent a year.

The CBA’s hike appears to have helped boost its net interest margin – a closely-watched profit margin in the banking industry. “Group net interest margin was higher in the quarter driven by asset repricing and reduced liquid asset balances,” the lender said in a trading update yesterday.

The bank’s net interest margin was 2.11 per cent at the end of June.

It did not provide an updated figure yesterday, but said its margin growth was “partly offset” by the impact of the new federal bank tax, higher funding costs and strong competition in an environment of record low interest rates.

Chief executives of the major lenders were criticised in a federal parliamentary hearing last month amid claims they cashed in on APRA’s new speed limits by hitting all interest-only mortgage customers with rate hikes rather than new customers alone.

For the year to June, the CBA reported a net profit of $9.93 billion, up 7.6 per cent from the previous year.