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Wednesday, April 05, 2017

CBA yet to finalise interest-only strategy

Apr 5 2017 at 11:14 AM Updated 0 min ago Save article Print License article Share via Email Share on Google Plus Post on facebook wall Share on twitter Post to Linkedin Share on Reddit Matt Comyn, CBA's Group Executive, Retail Banking Services, speaking at the AFR's Banking and Wealth Summit. Louie Douvis Share on twitter by James Frost Commonwealth Bank of Australia, one of Australia's biggest lenders with over $400 billion in mortgages, is yet to finalise its approach to the regulator's latest caps on interest only loans released last week. Speaking at The Australian Financial Review's Banking and Wealth conference, Commonwealth Bank's group executive for retail banking Matt Comyn says that the bank is yet to settle on how the new banking caps of 30 per cent on risky interest only loans. "As you could appreciate with the time frame we are working through that," Mr Comyn said. Commonwealth Bank is Australia's largest bank by market capitalisation valued at $148 billion. At the bank's interim results in February it revealed that 40 per cent of the book were on interest only loans. Under the second round of macro-prudential intervention launched by the Australian Prudential and Regulatory Authority released last Friday, Australian banks will not be able to dedicate more than 30 per cent of new mortgages to interest only loans. APRA chairman Wayne Byres said at the time this was high by international standards and enhanced already present housing risks in the system. The most recent figures released by the banks show that all of the big four banks are running at or close to 40 per cent and will have to immediately pull back on interest only loans to meet the new APRA guidelines. Westpac is on par with its Sydney based rival with close to 40 per cent of its residential mortgage book dedicated to interest only loans. NAB's exposure to interest only loans is running at 38 per cent and ANZ's exposure is 37 per cent. CBA's Mr Comyn was speaking in Sydney where he appeared after APRA chairman Wayne Byrnes who warned banks that higher hurdles for bank capital flowing from growing housing risks and would come ahead of the next set of international banking regulations known as Basel IV. A short history of the capital gains tax These changes increased the attractiveness of negative gearing and since they started, in 1999, the number of people making losses on residential property has doubled. Net rents have been negative since the introduction of the CGT discount. The 50 per cent discount on nominal capital gains can distort investor behaviour, particularly at a time of rapid capital gains. BCA submission, August 2015 I can’t see any reason for treating capital gains any different from income tax. It is broadly accepted that the capital gains tax discount is too high Capital gains tax concessions for assets held longer than a year provide incentives to invest in assets for which anticipated capital gains are a larger component of returns. Reducing these concessions would lead to a more efficient allocation of funding in the economy. David Murray’s financial system review, 2014 Tax changes that might only drag down house prices by 1 or 2 per cent should be put in perspective. House prices have grown annually by an average of 7.3 per cent since 1999. Grattan Institute, 2016 According to the Grattan Institute, reducing the capital gains tax discount to 25 per cent, could raise about $3.7 billion a year, and would have a minor impact on house prices. Former BCA president Tony Shepherd, June 2015 Investor interest in property has been especially strong in recent years, no doubt partly encouraged by low interest rates and the prospect of [concessionally taxed] capital gains.

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