Commonwealth Bank rolls back term deposit rates

CBA has quietly unwound a handful of term ­deposit rates put in place when it held back half the rates cut by the RBA.

Commonwealth Bank CEO Ian Narev. Picture: Renee Nowytarger

Commonwealth Bank has quietly unwound a handful of term ­deposit rates put in place to offset the fallout from holding back half the Reserve Bank’s rate cut from homeowners, relieving the pressure on margins less than two months after the promotion went live.

Ahead of hearings by the big four banks before a parliament committee next week, CBA on Wednesday sliced one-year term deposit rates to as low as 2.4 per cent, down from the 3 per cent promotion following the RBA’s cash rate cut to a record low 1.5 per cent in August.

As revealed by The Australian, CBA’s two-year deal was also dropped to as low as 2.45 per cent, from 3.1 per cent, while the bank’s three-year term deposit was left unchanged at 3.2 per cent.

CBA’s big four rivals are yet to cut similar promotions, according to Canstar.

“The fact that CBA has decided to drop its term deposit pricing ... just goes to show that it was always a temporary measure intended to make their decision to withhold part of the cash rate reduction more politically palatable,” said Omkar Joshi, at Watermark Funds Management.

It adds to term deposit cuts by other lenders in the past fortnight as the industry battles margin pressure from the low cash rate, regulatory burdens and hot competition. Suncorp, ING Direct, Bank of Queensland, Bendigo and Adelaide Bank and AMP have all sliced their offers, Canstar data showed.

Bankwest, owned by CBA, cut one-year deals 68 basis points to 2.28 per cent.

CBA’s move continues the big banks’ previous unwinding of similar deposit promotions once the heat had died down following controversial mortgage rate changes.

But the timing comes as CBA chief Ian Narev prepares to front the House of Representatives standing committee on economics on Tuesday, when he will be grilled on the bank’s interest rate changes and treatment of small businesses.

Westpac’s Brian Hartzer, ­National Australia Bank’s Andrew Thorburn and ANZ’s Shayne ­Elliott will also front the committee after Malcolm Turnbull ordered the appearances at least annually in an attempt to quell Labor’s call for a royal ­commission.

Labor’s push, which has support from the Greens and some crossbenchers, grew louder after the big four banks and other lenders held back about half the RBA’s 25-basis-point rate cut from mortgage holders last month.

CBA cut variable mortgages 13 basis points and raised longer- duration term deposit rates, arguing the bank had to meet the needs of depositors, borrowers and shareholders.

Mr Narev had predicted the bank’s more generous term deposit rates to attract around $1 billion of fresh cash a week.

The RBA, however, dented the banks’ claims about higher funding costs and margin headwinds, noting that 12-36 month term deposits make up less than 2 per cent of their funding.

An RBA study this month also found changes in interest rates had a “much stronger” effect on households than depositors, finding average borrowers hold two to three times as much net debt as average lenders hold in net liquid assets.

Clive van Horen, CBA’s executive general manager of retail products and strategy, confirmed the deposit rate reductions, noting the bank would always remain competitive and “tens of thousands of new and existing savers” were receiving good value.

He noted the three-year deal was still paying 3.2 per cent amid “record low” interest rates. Bigger investments attract better rates, with CBA paying 2.5 per cent for a $50,000 one-year term deposit versus 2.4 per cent for $10,000.

“Interest rates offered by Commonwealth Bank reflect a number of factors including local and international funding markets, regulatory requirements and competitive conditions and we frequently review our product offering to ensure they reflect market conditions,” he said.

CBA shares have been down since August when it reported soft profits and lower margins, shrinking the stock’s price to earnings premium above its rivals to a four-year low. CBA shares yesterday climbed 57c to $73.50.