Shake-up suits CBA

Like its big bank peers, Commonwealth Bank has held off passing on the full increase in funding costs to customers in the hope of trading off some margin in the short term for the opportunity to take retail market share from lenders whose funding structures did not give them such flexibility.

Yesterday's interim results announcement provided the first opportunity to see how that strategy was working.

In the home loan market, higher funding costs cut the bank's margin by 23 basis points - eight basis points of that was due to changes in term funding costs and 15 was due to higher basis risk.

From August through to the end of the year the bank held off making any rate changes other than increases that matched changes in the cash rate.  In January it increased its standard variable home loan rate by 10 basis points and earlier this month it added another five basis points.

Norris said it was early days in the current cycle and he expects the bank to pick up more share in its retail product segments in the coming months.

Reflecting the depth of uncertainty about the outlook for the credit markets, Norris made a revealing admission about the bank's retail interest rate policy process. On January 9 CBA increased home loan rates by 10 basis points to cover increased funding costs.

Other lenders moved at the same time but increased their rates by 15 basis points. When the Reserve Bank moved the cash rate earlier this month, CBA increased home loan rates by the RBA's 25 basis points plus another five.

"We made a mistake," said Norris. "In January it looked as though markets were moderating and we thought 10 basis points would be enough. But since then other problems have emerged. The 10 basis point move left us short."

Norris said the bank was getting better customer satisfaction ratings, an area he has targeted since taking over at the bank. Commonwealth lags its big bank peers on this measure.

Since December 2006 the Roy Morgan Research customer satisfaction survey has shown the bank's rating go up from 66.5 to 70.5 per cent, a 10-year high.