The CFO of Australia's largest bank says rising populism shows times have changed and companies need to adapt

Photo by Cole Bennetts/Getty Images

The rise of global populism shows times have changed and companies need to adapt, according to CBA’s chief financial officer David Craig.

“Clearly we only need to watch what’s happening in the US to see that times have changed,” Craig told Business Insider. “There are different community demands and interests. We are here to serve the community and so we will do what we can to keep in line with what our customers are asking.”

Australia hasn’t been immune to the wave of populism sweeping across the world. An economy growing below its potential, record low wage growth and broadly unaffordable house prices in several capital cities are exacerbating the trend in the Lucky Country, which has evaded a recession for a quarter-century.

Banks, which have racked up seven consecutive years of record high profits, are closely scrutinised on everything from increases in mortgage rates to executive pay. The CEOs of the four largest lenders in the country are now regularly called for public grillings by lawmakers, with the next one due in March.

Commonwealth Bank of Australia (CBA) chief executive officer Ian Narev (R) and chief financial officer David Craig (L) (WILLIAM WEST/AFP/Getty Images)

CBA, after revealing another record half-yearly profit on Wednesday, said it was putting up the interest only mortgage rates for landlords by 12 basis points. That comes as the central bank is expected to stay on hold for the rest of the year.

Craig said the move was not designed to protect shrinking margins but to ensure the bank didn’t fall foul of the Australian Prudential Banking Regulation Authority’s investor lending curbs.

“What we are more conscious of is that APRA has said that the cap on investor home loans should be 10%,” he said. “Fortunately or unfortunately, demand from our customers for investors continues strongly and we want to make sure we keep under APRA’s cap.”

This chart reveals the growth in CBA investor mortgage portfolio

Speculators are driving the Australian housing market betting on gravity defying price gains amid near record low interest rates. Regulators, fearful of the systemic risk that poses, have responded by urging banks to limit the growth in such loans.

And this one shows the comeback by speculators

Since 2015, Australian banks have resorted to raising lending rates for investors to check the growth in investor mortgages. While it has yielded some results, landlords have staged a comeback in recent months. Investor housing credit jumped by 0.8% in December, the largest monthly increase since June 2015, the Reserve Bank of Australia said.

With lending margins continuing to decline amid rising global bond yields and deposit competition, Craig said the bank would have to rely on other means such as cost cuts and efficiency to offset it instead of just raising interest rates.

“Funding costs have grown faster than what we can recover from customers,” he said. “Lending markets are very competitive and that could lead to margin decline. That requires us to get more efficient to cover that.”

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