housing funding costs
TRANSCRIPT
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12 June 2009
Funding Costs for Home Loans
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Overall Funding Costs continue to increase
The cost of long term wholesale funding is still at record levels
As old wholesale funding matures and is replaced by new more expensive funding,the Bank average cost of funding continues to increase.
The cost of retail funding has been increasing significantly as banks competeaggressively on deposits.
CBA home loan rate remains very competitive
Throughout the credit crunch, CBA has retained a very competitive standard variablehome loan rate.
Even with a 10bp increase, CBA has equal lowest standard variable rate of all the
major banks
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Standard Variable Rate Comparison
SVRCBA 5.64%
CBA (after change) 5.74%
ANZ 5.81%
NAB 5.74%
Westpac 5.81%
St George 5.79%
Suncorp 5.80%
BankWest 5.70%
Bank of Queensland 5.89%
Bendigo 5.90%
HSBC 5.74%
Source: Canstar Cannex
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-0.20%
-0.15%
-0.10%
-0.05%
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
1Jan08
1Feb08
1Ma
r08
1Ap
r08
1May08
1Jun08
1Ju
l08
1Aug08
1Sep08
1Oc
t08
1Nov08
1Dec08
1Jan09
1Feb09
1Ma
r09
1Ap
r09
1May09
1Jun09
CBA
ANZ
NAB
SGB
WBC
CBA Standard Variable Home Loan Rate - comparison
CBAs Standard Variable
Home Loan RateVs
Average of other majors[use RHS]
Standard Variable HomeLoan Rates[use LHS]
CBAs Standard Variable Home Loan Rate
is currently 0.15% less than the average ofother majors
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Funding Costs for Variable Rate Home Loans
Funding Cost for Variable Rate Home Loans
= Cash Rate + Long Term Funding Cost + Basis Risk Cost
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Long Term Funding- Costs have increased from Aug 07, and still remain very high
0.000%
0.250%
0.500%
0.750%
1.000%
1.250%
1.500%
1.750%
2.000%
2.250%
2.500%
2.750%
1Jul07
1Aug07
1Sep07
1Oct07
1Nov07
1Dec07
1Jan08
1Feb08
1Mar08
1Apr08
1May08
1Jun08
1Jul08
1Aug08
1Sep08
1Oct08
1Nov08
1Dec08
1Jan09
1Feb09
1Mar09
1Apr09
1May09
Source: CBA Spectrum and CBA Group Treasury
Credit Spreads for AA Australian bank senior debt in Secondary Markets
AA Aust Banks 3yr - not guaranteed
AA Aust Banks 5yr - not guarantee d
AA Aust Banks 5yr - domestic
guaranteed incl. f ee
AA Aust Banks 3yr - domestic
guaranteed incl. f ee
The cost of long term wholesalefunding has increased by over 1.10%
since June 2007
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The majority of the Banks funding is priced by reference to BBSW rates. BBSW rates are wholesale marketreference rates set daily, and are fixed rates for a period of months (eg typically 3 months). The difference betweenBBSW rates and the official cash rate (referred to as basis risk) has been extremely large and extremely volatile.
The Bank uses Overnight Index Swaps (OIS) to manage this Basis Risk.
The cost of OIS swaps has also increased dramatically since the start of the Credit Crisis.
Note: LIBOR (London Interbank Offered Rate) does not affect Australian banks BBSW is the Australian equivalent of LIBOR.
Basis Risk Cost has reduced in recent months but remains high
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
Jun 07 Aug 07 Oct 07 Dec 07 Mar 08 May 08 Jul 08 Sep 08 Nov 08 Jan 09 Mar 09 May 09
Cost of OIS (3mth moving average)
Cost of OIS (spot)
Long term average cost of OIS prior to Credit Crisis
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2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
30 Jun 07 30 Sep 07 30 Dec 07 30 Mar 08 30 Jun 08 30 Sep 08 30 Dec 08 30 Mar 09 30 Jun 09 30 Sep 09 30 Dec 09 30 Mar 10 30 Jun 10
Forecast Period: assumes all market rates remain
steady throughout 2009-10
Official Cash Rate
OIS cost - the cost of hedging BBSW and Cash Rate
Portfolio Long Term Funding Cost
Funding Cost:June 2007 = 0.20%May 2009 = 1.04%
June 2010 = ~ 1.46%
Total wholesale funding costs
The cost of funding the home loan portfolio will continue to riseas the older cheap term funding matures and must be replaced bymore expensive new term funding
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Funding Costs for Fixed Rate Home Loans
Funding Cost for Fixed Rate Home Loans
= Fixed Interest Swap + Rate Long Term Funding Cost
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3 Year Fixed Interest Swap Rate
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
1-Jul-08 1-Oct-08 1-Jan-09 1-Apr-09
Target Cash Rate
3 year sw ap rate
3 year swap rate hasincreased 0.80%
in 4 monthsThis period sawreductions in fixed
home loan rates due todecreases in the fixed
interest swap rates
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Deposit Funding Extreme Competition has driven up costs
Average Interest rates on deposits v cash rate
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09
Official Cash Rate
Deposit Interest Expense
Note: this is note the same as reported deposit margin which is based on internal transfer pricing that reflects swap rates, basisrisk and long term funding premiums
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-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Jul07
Jul07
Aug07
Sep07
Oct07
Nov07
Dec07
Jan08
Feb08
Mar08
Apr08
May08
Jun08
Jul08
Aug08
Sep08
Oct08
Nov08
Dec08
Jan09
Feb09
Mar09
Apr09
May09
6 month BBSW
Margin to BBSW (average per month)
Retail Term Deposit Rates are well above wholesale rates
Headline Term Deposit rates v 6 Month BBSW
Current 6 month TD rate of 3.8%v 6 Month BBSW of 3.3%
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Retail Funding
Short Term Wholesale
Structured Funding with first call
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Australian Banks have passed on much larger ratecuts than overseas
* From start of easing cycle to end December 2008. Source: RBA