Shares in Commonwealth Bank of Australia (ASX: CBA) could be impacted by a potential price war in the near future. Australia’s largest bank has moved its latest chess piece to lure new customers away from the other big banks.
At Monday’s market close, the CBA share price ended 1.62% higher to $103.94. It’s worth noting that its shares are around 4.5% off the all-time high of $109.03 reached in mid-August.
What moves in CBA making?
CBA has come into the spotlight recently for employing innovative tactics to win market share in the mortgage sector.
According to the Age, the bank is seeking to attract customers with cheap variable interest rates. This involves offering extremely low rates for new clients who are considered low-risk and have a 30% deposit on hand. The move is expected to further accelerate the already expensive housing market.
Furthermore, this could negate the Australian Prudential Regulation Authority’s (APRA) effort to curb property investors from entering the market. APRA’s policy requires financial institutions to evaluate new borrowers at an interest rate of 3 percentage points higher than the actual loan rate.
With mortgage competition expected to heat up, the banks could potentially assess home loan customers more favourably. By offering a discounted interest rate, this means that customers are now tested at a lower rate.
In addition, the big four banks have access to cheap funding giving more room to manoeuvre. This includes low-cost deposits and wholesale rates, as well as the $200 billion Reserve Bank scheme. The latter is an established funding facility that can be used to give customers rock bottom interest rates.
Time will tell where CBA shares end up when the company reports its first quarter trading update on 17 November.
CBA share price summary
It’s been a solid 12 months for CBA shares, rising by 50% in value for investors. When looking at year-to-date, its shares have lifted by more than 25% for the period.
CBA commands a market capitalisation of roughly $177.36 billion, making it the highest valued company on the ASX.
The post Own CBA (ASX:CBA) shares? Here’s why mortgage competition is intensifying appeared first on The Motley Fool Australia.
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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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