Homeowners are using rate cuts to pay off their mortgage faster rather than reduce their home loan burden, Commonwealth Bank (CBA) chief executive Ian Narev said on Tuesday.
As attention focuses on the Reserve Bank of Australia’s (RBA) rates decision on Melbourne Cup Day, Mr Narev said major banks not passing recent cuts on in full had not contributed to ongoing consumer caution and weak economic conditions.
Speaking after CBA’s annual general meeting (AGM) in Sydney, he said consumers were not spending regardless of the size of the rate cut they receive.
“What we repeatedly find in this environment, when we cut the standard variable rate as we have, is that customers choose not to change their payments,” he said.
“That isn’t a question of whether you pass on 25 basis points, 20 or 18, that is a function of what individuals are choosing to do, which is to accelerate repayment of debt.”
All major banks including CBA failed to pass on in full the most recent 0.25 per cent cash rate reduction by the RBA on October 2.
CBA has blamed the increased cost of attracting deposits for not passing rate cuts on in full.
CBA chairman David Turner said rate cuts should not be expected to stimulate the housing market in the near term.
“The rule of thumb is in an economy that’s buoyant, an interest rate cut doesn’t feed through to house-buying activity for about 18 months,” Mr Turner said.
Earlier Mr Turner told shareholders at the AGM that the economic outlook globally remained uncertain and the bank expected demand for credit to remain subdued in the current financial year.
Mr Narev said the global uncertainty would “continue to translate in Australia to lower credit growth, higher savings rates (and) more nervousness regarding investments”.
“But we remain very confident about the prospects of the Australian economy in the medium to long term, and indeed in the other economies such as Indonesia and China in which the Commonwealth Bank Group has interests,” he said.
Proceedings at AGM were briefly interrupted as Mr Narev spoke by a scuffle between security staff and a man holding a coffin-shaped plaque, emblazoned with the letters “RIP” in the seats in front of the stage.
Witnesses said the man had gone onto the auditorium stage before the meeting to hand a document to Mr Narev.
The man was associated with a group representing unhappy customers of BankWest, which was acquired by CBA in 2008.
During the meeting Mr Narev ruled out setting local job reduction targets and sending jobs offshore as “tempting short-term approaches”.
“What can be very tempting short-term labour cost benefits almost inevitably get overwhelmed by the long-term loss of control and increase in operational risk,” he said.
Mr Narev also noted that 50 per cent of logins to the bank’s online banking service are now from mobile devices.
He said CBA had completed a five-year, $1 billion-plus redevelopment of its core banking platform to better meet the demands of new technologies.
CBA’s remuneration report was passed, as was a $4 million, four-year incentive rights award for Mr Narev.
CBA shares closed up 52 cents at $57.31 on Tuesday.
