As funding costs spur fears of Australia’s biggest banks hiking interest rates, some experts believe that the Commonwealth Bank of Australia will have fewer reasons to do so given its profits margins.
In a report on The Sydney Morning Herald, several analysts claim that it would be harder for the bank to justify any interest rate hike due to its net interest margin – a key indicator which measures the funding costs versus what the bank charges for loans. CBA's margin widened to 2.15% over the full year to June, up five basis points.
In a note, JP Morgan analysts Andrew Triggs and Nicholas Dalton said despite the half-yearly decline in net interest margin, CBA is still standing on a modest ground.
"We also believe that CBA’s group [net interest margin] outcome could make mortgage repricing a little less likely in the short term, although we still cannot rule this out," the analysts said, as quoted by The Sydney Morning Herald.
Given that CBA represents roughly one in four home loans in Australia, its mortgage pricing has a major impact on the prices from its big rivals. So far, the lending giants have resisted moving their interest rates.
UBS analyst Jonathan believes CBA would not sustain its net interest margin. However, what would make it unlikely for CBA to raise interest rates is the recent debate surrounding the bank's practice on existing customers.
"While back book mortgage repricing would help, this appears less likely following comments from the Productivity Commission," he told The Sydney Morning Herald.
A previous report on the Australian Financial Review (AFR) said major lenders are increasingly finding it hard to afford the skyrocketing costs of their residential loan books, which account for 55% of their total lending portfolios.