The CBA number that shows what households are doing with their extra billions in cash

There is one number contained in the Commonwealth Bank’s September quarter result that pops out. It tells a much bigger story about what Australian households are doing with the billions of dollars they received from recent tax rebates and interest rate cuts.

It’s bank deposits. In CBA’s case it has experienced a 10.4 per cent increase in the amount held in deposits compared with the average of the two previous quarters.

CBA chief executive Matt Comyn said deposits volumes had jumped 10.4 per cent over the quarter. Credit: Alex Ellinghausen

And this is despite the fact that many bank deposits are attracting nominal interest rates that are near or approaching zero.

But the increasingly savvy mortgage-holding Australian householder is clearly putting money into deposit offset accounts to further cut their interest rate payments.

That is just one part of the story.

There is another graph in the CBA results that shows customer arrears in mortgages, credit cards and personal loans have also come down since June 30 when the bank last reported.

The story this tells is that the stimulus payments are being used by Australians to pay down household debt.

In other words, households are cleaning up their balance sheets.

Already we have seen evidence consumers have not used lower interest rates to reduce their monthly mortgage payments. In CBA’s case only 69,000 of the 1 million customers with variable interest rate loans have done so.

In ANZ’s case only 7 per cent have cut their interest repayments. An even smaller percentage of Westpac's mortgage customers had taken the opportunity to reduce their monthly payments.

The evidence supports the contention that Australians are becoming more financially conservative during a period when there is elevated concern about the state of the economy.

Elevated levels of household debt are seen as a risk in Australia which has the second-highest proportion of personal debt to income in the world - after Switzerland.

The use of tax rebates and lower interest rates to cut debt also explains why the boost to discretionary spending failed to materialise and why many economists are now predicting a slow Christmas for retailers.

It also raises question marks over the efficacy of further reductions in interest rates for stimulating household spending.

In releasing the latest round of bank earnings some bank chiefs, including Westpac’s Brian Hartzer, have raised doubts around whether businesses would borrow more in response to further interest cuts.

Unlike households, businesses in Australia have relatively low gearing but have a reluctance to invest.

Life after remediation

Meanwhile the CBA quarter result is interesting from another perspective - it provides just a small taste of what an Australian bank might look like after coming out of the remediation chapter of its history.

In many respects CBA has been ahead of its three main rivals in addressing the misconduct issues and selling non-core assets.

CBA is offering no guarantees there aren't more problem areas as the deep dives get deeper but investors expect (or hope) that peak remediation has passed.

In the quarter CBA announced no additional provisions for customer remediation, however, there were still ongoing remediation-related costs from the likes of higher staffing and amortisation. These could not be completely offset by cost-cutting productivity gains.

And if one puts the costs of remediation to the side, the underlying bank appears to be performing well enough, given the difficult environment.

Home lending volume was up 3.5 per cent which increased CBA's market share but it seems to have executed the transformation of the mortgage application process better than some of its competitors.

But net interest income increased only 2 per cent and cash profit improved 5 per cent excluding notable items.

On the expense side, the absence of fresh remediation costs helped comparisons with previous periods.

Like the other major lenders CBA is feeling pressure on its net interest margins and these are likely to come under further pressure as the October interest rate cut takes its toll.

It was more of a relief result than a cause for celebration.