Margin pressure will persist for Commonwealth Bank for a few more months at least and maybe longer, the bank said yesterday.

The banks’ net interest margin fell 17 basis points (and 9 bps on an underlying basis) the bank reported in its December 2021 half year results.

“In the near term, there are margin headwinds from fixed rates for a few more months … with new fixed rate loans lower [in this second quarter] than in the first quarter of this financial year,” Alan Docherty, the bank’s CFO, told an investor briefing.

The proportion of fixed rate loans will peak during the second half of this year. 

“We wouldn’t want to see an accelerating trend of margin reduction,” he said.

Unusually providing some guidance on the medium term outlook for margins, the bank said it would reap the benefits from a rising cash rate cycle on A$170 billion in very low rate deposits.

The bank anticipates “NIM accretion of 4 bps” per 25 bps rise in the cash rate over time, Docherty said, while the fixed rate share of the book would “normalise … and reduce from the second half peak”.

While operating expenses were flat, staff costs increased a whopping 13 per cent over the half, a mix of volume growth and in-sourcing.

Taking an optimistic view on the recovery from the pandemic, the bad debt expense fell $957 million via a lower collective provision.

Commonwealth Bank remains the only big bank to take the SME Loan Recovery scheme and its predecessors seriously, with around $2.8 billion in funding.