CBA chief defends pocketing half of RBA interest rate cut since depositors & shareholders benefit

After Commonwealth Bank of Australia (CBA) reported on Wednesday a 3 percent rise in full-year profit to $9.45 billion, the bank defended itself from criticisms for not passing in full to borrowers the 25 basis points interest rate cut made by the Reserve Bank of Australia (RBA) on Aug 2. CBA Chief Ian Narev said the 0.12 percent of the rate cut the lender kept would go to deposit customers and shareholders.

Narev stresses these two groups do not belong to Australia's elite, reports The Australia. He points out some of them feel real pain from the low key lending rates. Narev says the bank was striking the right balance between customers with opposing interests and shareholders, reports Sydney Morning Herald.

He discloses that 75 percent of CBA depositors are 55 years old and above who were hurt terribly by the low-interest rate regime and causing real pain in their income as well as affecting their day-to-day spending decisions. CBA has 11 million depositors, 800,000 household shareholders, 1 million pension fund shareholders and almost 2 million home loan customers whose interests the bank must strike a right balance, Narev says.

He also says CBA has higher funding costs and raised interest rates on some term deposits. If the bank fails to find the right balance, Narev says it would weaken the lender – Australia’s largest and most profitable bank – and the broader Australian economy.

Despite the Aussie economy relatively strong, Narev says the weak commodity prices is affecting growth and borrowers as hesitant to respond to RBA’s monetary policy as strongly. “We are seeing examples hear of the global phenomenon where fragility in the global economy, concerns about the global geopolitical environment, creates a lack of confidence which monetary stimulus cannot fully offset,” he explains.

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Source: CommSecTV