BANKS PARLIAMENT COMMITTEE
The head of the country's largest retail bank has warned shareholders that the low interest-rate environment is having a negative impact on its books.
"If you look at the results of the three other major banks you can see that low interest rates are having an impact on particular net interest margins," the Commonwealth Bank's CEO Matt Comyn told federal MPs on Friday.
The Commonwealth Bank releases its quarterly results next week.
Earlier, Westpac CEO Brian Hartzer told the House of Representatives economics committee in Canberra, ultra low interest rates will continue to impact on profitability, "even if there are not further declines in official cash rates".
An analysis by consultants EY of the four major banks' results shows combined cash earnings have slumped 7.8 per cent in 2019 compared to a year earlier.
While Mr Comyn and Mr Hartzer are fierce competitors in Australia's banking industry they agreed on one thing.
There is still work to do restore the trust of customers after the damning findings from the royal commission earlier this year.
These two banks alone have already doled out millions of dollars in remediation payments to compensate mistreated customers, and expect the bill to run into billions.
"The royal commission ... has forced us to confront a number of failures where we haven't served our customers appropriately," Mr Comyn said.
"We have set about making significant changes to ensure, not only they are remediated in full and promptly, but also taking proactive steps to ensure these things don't ever happen again."
He said his bank has already paid out $1.2 billion in remediation payments and this is expected to grow to $2.2 billion.
The hearing was told Commonwealth Bank still faces seven class actions, including those involving money laundering.
Mr Comyn denied his bank was slugging existing customers with a "loyalty tax" despite newcomers often being able to secure a lower mortgage rate.
"We don't seek to distinguish between new or existing but we do recognise that the prevailing offers that are available in any market at a point in time can occasionally differ," Mr Comyn said.
Mr Hartzer told the hearing his bank has provisioned for $1.4 billion in remediation costs, but couldn't rule out additional charges beyond this financial year.
"It is sadly inevitable that there will always be some errors ... There is likely to be more but we have no idea of how much that will be," Mr Hartzer admitted.
On the state of the economy, Mr Hartzer said the interest rate cuts led by the Reserve Bank have had some benefits, such as the bounce-back in real estate sales.
But he believes further interest rate cuts by the central bank may have a negative impact on the economy, rather than giving it a boost.
"I do have sympathy for the view that for some people further reductions in interest rates are seen as a negative symbol rather than a positive," he said.
The Reserve Bank has cut the official cash rate three times this year to a record low 0.75 per cent, and in its latest quarterly monetary statement on Friday said it is prepared to ease monetary policy further should the economy require such stimulus.
Mr Hartzer doubts Australia will eventually see negative interest rates, but Westpac is still preparing for the possibility.
The heads of ANZ and National Australia Bank will appear before the committee next Friday.