Australian banks will make tens of thousands of dollar more every hour from rate increases

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The major banks, far from just recouping costs by lifting home loan interest rates, will actually improve their profits by between 2% and 3%, according to analysis by Deutsche Bank.

For the Commonwealth Bank, such an improvement would see the bank making an extra $30,000 an hour in profit, every day. Or about $274 million over a year.

Commonwealth posted a $9.137 billion cash profit for the year to June. The other three banks are due to report their annual results over the next two weeks.

All three banks which have announced home mortgage increases — the Commonwealth, Westpac and NAB — have laid the reason for charging more on costs associated with meeting stricter capital holding regulations so they become more resilient to any future financial crisis.

However, analysts at Deutsche Bank estimate the current round of increases should boost net profits of the major banks by between 2% and 3% in a full year.

And there could be more rises on the way.

“We expect to see further repricing which should partially offset the ROE (return on equity) impact of the tightening regulations,” write Andrew Triggs and Anthony Hoo in a note to clients.

Regional banks will also see a bigger benefit, as much as 6% improvement for some, when the latest round of increases flows through, as this chart shows:

The NAB today became the third major bank to raise home loan rates, increasing its standard variable home loan rate for owner occupiers by 0.17 of a percentage point to 5.60%.

NAB will get the biggest kick — a 3.2% rise in net profit — among the big four banks from the home loan rate rise.

However, the Deutsche Bank calculations, done before today’s announcement, assumed the bank would go for a 0.15 percentage point rise. The NAB benefit will be bigger than first thought.

The Commonwealth Bank yesterday raised rates on owner-occupier mortgages by 15 basis points. Westpac last week announced a 20 basis point rise.

All three referenced the move by APRA, the banking regulator, to increase the level of capital the banks need to hold against their home loans.

The NAB said today: “Regulatory changes on capital requirements also increase the costs associated with providing home loans. In May this year, NAB took early steps to strengthen our capital position by raising $5.5 billion to begin to address expected changes in capital requirements.”

The four biggest Australian banks have already gone to the market this year for major capital raisings, hauling in around $18 billion in issues between them. The Commonwealth Bank alone raised $5.1 billion and NAB $5.5 billion.

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