Australia Big Four's profit on loans at 7-year low amid higher bond costs

Sydney

THE profit Commonwealth Bank of Australia and its main competitors make on lending has dropped to a seven-year low as bond costs climb.

Net interest margins, the difference between funding costs and the interest charged on loans, dropped to an average of 2.02 per cent for Australia's four largest banks, a level unseen since 2008, data compiled by Bloomberg show. The measure is set to fall further in 2015, according to Macquarie Group.

Margins are under pressure as banks discount mortgages to grab market share, while savers deposit less money after the interest they get paid fell to a record. Bond costs in Australia are climbing at the fastest pace since 2012 as the prospect of tighter US monetary policy affects global markets. "It is just the reverse of quantitative easing," Michael Wiblin, a Sydney-based analyst at Macquarie said. "With rates turning in the US, spreads are likely to widen as well. Margin p…