Savers facing more interest rate pain

COMMONWEALTH Bank chief Matt Comyn has warned savers to brace for more pain, saying he expects the Reserve Bank to cut interest rates in a move to be felt “quite sharply” by depositors.

The comments came as the nation’s biggest bank posted a drop in full-year profit as it absorbed $1.2 billion in customer compensation costs, pocketed less in fees and saw its lending margins crimped by low interest rates.

Shares in CBA dropped yesterday in a session where the broader stock market climbed into positive territory, snapping a sharp two-day plunge which had wiped $85 billion from the value of the nation’s biggest companies.

Mr Comyn said while the property market was stabilising and home lending picking up, he expected the RBA to deliver another 0.25 percentage point cut this year to take the cash rate to 0.75 per cent. That would ultimately again hit saving accounts, he warned.

“We recognise how difficult it is for the millions of Australians who are dependent on deposit rates for a good proportion or all of their income,” Mr Comyn said yesterday. “Any further reduction in the cash rate will be felt quite sharply by them.”

While welcomed by borrowers, emergency level interest rates have hammered savers and are creating headaches for bank executives.

CBA’s net interest margin — broadly the profit it makes from loans — fell 0.5 percentage points to 2.10 per cent over the year to June. Back-to-back interest rate cuts delivered by the RBA in June and July would shrink it by another 0.4 percentage points this financial year, CBA said.

The banking giant also has $160 billion in deposits which are either paying nothing or near nothing or are locked in at higher rates. Net profit fell 8 per cent to $8.57 billion for the year to June.

It has previously denied it is looking to cut 10,000 jobs from its workforce. Shares in CBA shed 1.4 per cent yesterday.