The new variable home loan interest rates will be effective for new and existing customers from 11 January 2008.
Ross McEwan, Group Executive Retail Banking Services said, "We have given careful consideration to the size of this increase and while a higher increase could be justified, we believe that the current level of wholesale funding rates will moderate from the high level experienced pre-Christmas. This modest increase strikes a good balance between the needs of our customers and shareholders."
"We have held off passing the increased cost of funds on to our variable loan customers for over five months as we waited to see if the markets would stabilise as they did back in September for a short period. Unfortunately, this has not happened and we have seen continued erosion in the Bank’s lending margins."
David Craig, the Bank’s Chief Financial Officer said that the move by the Bank follows large and sustained increases in cost of funding. Since the beginning of the liquidity crisis, the Group has so far been exposed to additional funding costs of approximately $100 million. This has resulted from both a widening of the gap between the cash rate and the 90-day bill rate, and the significantly higher cost of debt in the wholesale markets.
Mr Craig said, "The impact of the cost of wholesale funds is something that is impacting all Australian banks."
Mr McEwan said, "While market conditions have driven this interest rate increase and therefore increased required minimum repayments, approximately half of Commonwealth Bank variable rate home loan borrowers have a buffer as they are already paying more than the required amount".
"Customers are encouraged to review their financial position and budgeting in light of this interest rate increase to ensure that their arrangements remain appropriate for their circumstances. Those customers who are seeking some assistance or financial advice should contact their branch or our home loan hotline on 13 22 24. We can discuss with them alternative arrangements, such as extending the loan term."
The Bank also announced that it is lifting its variable business loans by 0.15 per cent per annum.