Commonwealth Bank Chief: Funding costs to Stay High

Commonwealth Bank CEO Ralph Norris, speaking at yesterday's American Chamber of Commerce in Australia luncheon in Sydney, has said that funding costs were to remain high. "All of the banks have a significant portfolio of debt that has been borrowed at lower rates, prior to the start of the crisis, which has continued to roll over at higher rates. And what that means is that the average cost of debt that the banks have on their balance sheet continues to rise." Norris said that before the financial crisis, banks had been able to borrow money at between 13 and 15 basis points above the swap rate. "I don't think we're going to get back to those levels any time soon."

He also noted that the local Australian big four banks had performed better than US or European banks and are among eight banks in the world which have AA ratings. Although Australia hasn't been immune to the crisis, he noted that a decade of federal government surpluses, good banking regulation and Australia's close ties with Asia helped keep our banks healthy. ""While I accept that there is need for regulatory reform, we must be careful that Australia, which has a healthy banking system and an effective and well-managed regulatory regime, is not materially disadvantaged by changes driven by poor practices in the northern hemisphere."

After the speech, Mr Norris told the media that Commonwealth Bank (CBA) had no direct exposure to Greece or Greek banks. "Our wholesale funding costs will still increase as the long-term debt continues to roll over," Mr Norris said. "All of the banks have a significant portfolio of debt that has been borrowed at lower rates, prior to the start of this crisis."

Commonwealth Bank plans to continue its expansion in Asia after announcing last week it had purchased a 20% stake in lender Vietnam International Bank. "We continue to invest in China and we will continue to invest significantly more in Indonesia and Vietnam," he said. Commonwealth Bank would like to increase the number of branches it has in Indonesia to near 100 by the end of this year, from 75 now, he said.