Competitors influenced IO rate hikes: CBA

While APRA has been the main factor for recent IO rate rises, the bank has said competition affected the size of these hikes

Competitors influenced IO rate hikes: CBA



The size of interest only rate increases made by the Commonwealth Bank of Australia (CBA) was determined by actions taken by the competition, the bank’s chief executive officer has said.

CEO Ian Narev detailed the reasoning behind CBA’s rate hikes in front of the House of Representatives Standing Committee on Economics in Canberra on Friday (20 October).

“The reason we made the pricing move was to ensure that we complied with our regulatory requirements and the quantum of the pricing move was made in response to having seen what our competitors had done in order to meet those requirements.”

He acknowledged that by moving margins that revenues would improve over the short term, however he denied that this was the motivation behind the changes.

“The statement that we made the change in order to meet our regulatory requirements is the correct statement. That was the motivation and absent that change in regulatory requirement the change in pricing would not have been made.”

The recent slowdown in interest only bank lending has shown that pulling the pricing lever was the correct action to take, he added.

Narev also fielded a question from Kevin Hogan, Nationals MP and member of the committee, who claimed that brokers are incentivised to write larger loans for their customers by their remuneration structure.

While Narev took the specific question relating to brokers on notice, he said that further discussions are needed as to how much customers should be allowed to borrow.

“Historically there has generally been a view that whatever the bank will lend to me, I should borrow. We lend responsibly for what people could service but ultimately the question of what level of debt somebody is comfortable with is very personal.”

CBA is looking into behavioural economics in conjunction with Harvard University in order to have “richer discussions” with people around the amount they borrow, he said.

Related stories:

Rate hikes “indicative” of competition issues: ACCC

Brokers writing fewer IO loans

IO loans “key tail risk” in market

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