Housing Funding Costs

8/14/2019 Housing Funding Costs

1/14

1

12 June 2009

Funding Costs for Home Loans


2/14

2

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


3/14

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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


4/14

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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


5/14

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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


7/14

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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


8/14

8

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


9/14

9

Funding Costs for Fixed Rate Home Loans

Funding Cost for Fixed Rate Home Loans

= Fixed Interest Swap + Rate Long Term Funding Cost


10/14

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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


11/14

11

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


12/14

12

-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%


13/14

13

Retail Funding

Short Term Wholesale

Structured Funding with first call


14/14

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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

Documents

Housing Funding Costs