Gina Cass-Gottlieb knows bank cartels
CBA deployed an extreme deposits pricing strategy in the six months to the end of December 2022, resulting in small business and household accountholders subsidising higher interest returns to the bank’s institutional depositors.
Disclosures in the bank’s first half accounts reveal how retail and small business depositors missed out on the benefits of successive official rate rises, while the big end of town – large companies, super funds and government agencies - feasted on plump rewards for parking their cash in the bank’s vaults.
The composition of CBA’s first half net interest margin should provide fertile ground for the ACCC’s investigation into how banks set interest rates for Australian savers.
CBA’s group net interest margin – the difference between what it receives in interest payments and what it dishes out to depositors and other funders – soared 23 basis points in the half to 2.10 per cent.
The dramatic margin recovery was mostly attributable to the bank’s policy of delaying or not passing on official rate rises to household and small business depositors while ensuring that lending rates were fully repriced after each RBA increase.
Small business customers copped the brunt of CBA’s discriminatory approach to pricing after the business banking unit reported a 31 per cent surge in cash profit to A$1.97 billion.
The earnings windfall from the business division had nothing to do with any loan volume gains – the bank’s business lending book barely grew in the period – but can be traced to a ruthless pricing policy.
The business division reported a 65 basis point increase in its net interest margin to a whopping 3.63 per cent
Retail customers, who collectively account for most of CBA’s total deposits also got fleeced.
The consumer division reported a 39 basis point rise in its net interest margin to 2.74 per cent, which underpinned a 5 per cent rise in its cash profit contribution.
As the bank punished its small business and retail customer base throughout the half, it reserved its generosity for corporates and large super funds.
CBA’s institutional division was the only part of the bank to suffer a decline in profit in the period.
After-tax cash earnings fell 3 per cent to $453 million.
The biggest driver of the institutional division’s result was margin contraction, which saw its NIM contract 19 basis points to a razor-thin 0.86 per cent.
As reported in Banking Day last year, banks such as CBA have been offering premium rates to institutional depositors, sometimes more than double the pricing pitched to retail customers.
Apart from being inequitable, CBA’s approach to deposit pricing appears to have unnerved investors who are concerned that the bank’s profitability in the current business cycle might have peaked.
The discriminatory pricing strategy will likely unravel in coming months simply because it is unsustainable for a banking business that funds 75 per cent of its lending through deposits.
That sentiment appeared to be one of the drivers weighing on the bank’s share price on Wednesday.
CBA’s share price closed down $6.25 or 5.7 per cent to $103.
CBA began losing market share in the retail and business deposits markets in the six months to the end of December, according to official data collated by APRA.
The competition regulator revealed on Wednesday that it had been directed by Federal Treasurer Jim Chalmers to inquire into deposit pricing practices across the banking sector.
“We welcome this direction from the government to shine a light on the retail deposit market and rate-setting decisions of banks,” said ACCC Chair Gina Cass-Gottlieb.
“We are aware that deposit and savings accounts are an important source of income for many Australians, typically supplementing their income from employment, superannuation and the pension.”