(8 December 2009 – Australia) The chief executive of Commonwealth Bank, Ralph Norris, warns of the effect new liquidity requirements, if adopted in full, will have on mortgage rates.The third consecutive interest rate hike by the Reserve Bank of Australia has resulted in the three of the big four all raising their interest rates, including CBA, over the authority’s official 0.25 basis point move.
Mr Norris said, in an interview with businessday, that potential changes in the liquidity rules could put more pressure on variable interest rates.
The rules, proposed by the Australian Prudential Regulation Authority, will force banks to stockpile billions of dollars in largely unproductive assets, damaging the banks profitability.
Mr Norris added that the requirements will have two potential impacts, the first, interest rates continuing to increase at a faster rate that the official rates and secondly, the issue of availability of funds.
CBA said on Friday it would increase rates on standard variable mortgages by 0.37 percent, compared with Westpac’s 45 basis point increase.
Mr Norris said he was not surprised by the backlash that hit Westpac after their announcement.
CBA faced similar criticism in June, after the group announced it would raise its variable home loan rate by 10 basis points outside of any moves in official interest rates.
Citigroup Australia chief executive, Stephen Roberts, said debt markets were already starting to react to the prospect of banks being forced to buy government bonds to meet the new rules.
Mr Roberts said that they have already seen some technical shift in the price of Commonwealth Government securities as a result of what APRA is proposing.
He expects some level of compromise before the final rules ‘but no one knows at this stage’ what shape this could take.