Funding Costs for Home Loans

12 June 2009
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Overall Funding Costs continue to increase

• The cost of long term wholesale funding is still at record levels

• As old wholesale funding matures and is replaced by new more expensive funding,
the Bank average cost of funding continues to increase.
• The cost of retail funding has been increasing significantly as banks compete
aggressively on deposits.

CBA home loan rate remains very competitive

• Throughout the credit crunch, CBA has retained a very competitive standard variable
home loan rate.
• Even with a 10bp increase, CBA has equal lowest standard variable rate of all the
major banks

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Standard Variable Rate Comparison

SVR
CBA 5.64%
CBA (after change) 5.74%
ANZ 5.81%
NAB 5.74%
Westpac 5.81%
St George 5.79%
Suncorp 5.80%
BankWest 5.70%
Bank of Queensland 5.89%
Bendigo 5.90%
HSBC 5.74%

Source: Canstar Cannex

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CBA Standard Variable Home Loan Rate - comparison

10.00% 0.30%

9.00% 0.25%
Standard Variable Home
Loan Rates
8.00% [use LHS] 0.20%

7.00% 0.15%

CBA
6.00% 0.10%
ANZ

5.00% 0.05% NAB

SGB
4.00% 0.00%
WBC

3.00% -0.05%

2.00% CBA’s Standard Variable -0.10%

Home Loan Rate
1.00% Vs -0.15%
Average of other majors
[use RHS]
0.00% -0.20%

1 Nov 08

1 Dec 08
1 Aug 08

1 Sep 08
1 Feb 08

1 Mar 08

1 Feb 09

1 Mar 09
1 Jan 08

1 Jun 08

1 Jul 08

1 Jan 09

1 Jun 09
1 Apr 08

1 Oct 08

1 Apr 09
1 May 08

1 May 09
CBA’s Standard Variable Home Loan Rate
is currently 0.15% less than the average of
other majors

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Funding Costs for Variable Rate Home Loans

Funding Cost for Variable Rate Home Loans

= Cash Rate + Long Term Funding Cost + Basis Risk Cost

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Long Term Funding
- Costs have increased from Aug 07, and still remain very high

Credit Spreads for AA Australian bank senior debt in Secondary Markets

2.750%

2.500%

2.250%

2.000%

1.750%

1.500%
AA Aust Banks 5yr - not guaranteed
1.250% AA Aust Banks 3yr - not guaranteed AA Aust Banks 3yr - domestic
1.000% guaranteed incl. fee

AA Aust Banks 5yr - domestic

0.750% guaranteed incl. fee

0.500% The cost of long term wholesale

funding has increased by over 1.10%
0.250%
since June 2007
0.000%
1 Jul 07

1 Oct 07

1 Jan 08

1 May 08

1 Jun 08

1 May 09
1 Nov 07

1 Dec 07

1 Feb 08

1 Mar 08

1 Jul 08

1 Oct 08

1 Jan 09
1 Nov 08

1 Dec 08

1 Feb 09

1 Mar 09
1 Sep 07

1 Sep 08
1 Aug 07

1 Apr 08

1 Aug 08

1 Apr 09
Source: CBA Spectrum and CBA Group Treasury

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Basis Risk Cost
– has reduced in recent months but remains high
1.00%

0.80%

Cost of OIS (spot)

0.60%

0.40%

Cost of OIS (3mth moving average)

0.20%

Long term average cost of OIS prior to Credit Crisis

0.00%
Jun 07 Aug 07 Oct 07 Dec 07 Mar 08 May 08 Jul 08 Sep 08 Nov 08 Jan 09 Mar 09 May 09

• The majority of the Bank’s funding is priced by reference to BBSW rates. BBSW rates are wholesale market
reference rates set daily, and are fixed rates for a period of months (eg typically 3 months). The difference between
BBSW rates and the official cash rate (referred to as basis risk) has been extremely large and extremely volatile.
• The Bank uses Overnight Index Swaps (OIS) to manage this Basis Risk.
• The cost of OIS swaps has also increased dramatically since the start of the Credit Crisis.

• Note: LIBOR (London Interbank Offered Rate) does not affect Australian banks – BBSW is the Australian equivalent of LIBOR.
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The cost of funding the home loan portfolio will continue to rise
as the older cheap term funding matures and must be replaced by
more expensive new term funding

Total wholesale funding costs

9.0%

8.0%
Portfolio Long Term Funding Cost

OIS cost - the cost of hedging BBSW and Cash Rate

7.0%

Funding Cost:
June 2007 = 0.20%
6.0%
May 2009 = 1.04%
June 2010 = ~ 1.46%
5.0%

4.0%
Official Cash Rate

3.0%

Forecast Period: assumes all market rates remain

steady throughout 2009-10
2.0%
30 Jun 07 30 Sep 07 30 Dec 07 30 Mar 08 30 Jun 08 30 Sep 08 30 Dec 08 30 Mar 09 30 Jun 09 30 Sep 09 30 Dec 09 30 Mar 10 30 Jun 10

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Funding Costs for Fixed Rate Home Loans

Funding Cost for Fixed Rate Home Loans

= Fixed Interest Swap + Rate Long Term Funding Cost

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3 Year Fixed Interest Swap Rate

8.00%

7.00%

6.00%
3 year sw ap rate

3 year swap rate has

5.00%
increased 0.80%
This period saw
in 4 months
reductions in fixed
home loan rates due to
decreases in the fixed
4.00%
interest swap rates

3.00%

Target Cash Rate

2.00%
1-Jul-08 1-Oct-08 1-Jan-09 1-Apr-09

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Deposit Funding – Extreme Competition has driven up costs

Average Interest rates on deposits v cash rate

8.00%

7.00%

Official Cash Rate

6.00%

5.00%

4.00%
Deposit Interest Expense

3.00%

2.00%

1.00%

0.00%
Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09

Note: this is note the same as reported deposit margin which is based on internal transfer pricing that reflects swap rates, basis
risk and long term funding premiums

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Retail Term Deposit Rates are well above wholesale rates

Headline Term Deposit rates v 6 Month BBSW

10.00%
Current 6 month TD rate of 3.8%
v 6 Month BBSW of 3.3%
8.00%

6.00%

6 month BBSW
4.00%

2.00%

0.00%

Margin to BBSW (average per month)

-2.00%
Jul 07

Jul 07

Jul 08
Oct 07

Jan 08

Apr 08

Jun 08

Oct 08

Jan 09

Apr 09
May 08

May 09
Nov 07

Nov 08
Dec 07

Dec 08
Aug 07

Sep 07

Feb 08

Mar 08

Aug 08

Sep 08

Feb 09

Mar 09
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Source of funding CBA FY09

Deposit Funding
Retail Funding Long Term Wholesale maturing in next 12m
Short Term Wholesale Long Term Wholesale maturing after 12m
Structured Funding with first call <12mth Securitisation

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Australian Banks have passed on much larger rate
cuts than overseas

* From start of easing cycle to end December 2008. Source: RBA

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