The Commonwealth Bank is moving to shore-up its capital position via a $750 million notes offer, with low interest rates and further expected remediation costs compounding an already tough operating environment for lenders.
CBA said the CommBank PERLS XII Capital Notes will qualify as tier one capital with an expected margin of between 3.0 per cent and 3.2 per cent above the bank bill swap reference rate.
CBA had already issued about $US2.5 billion ($A3.6 billion) worth of subordinated notes in September in response to an APRA-led push for lenders to bolster capital to act as a buffer during a crisis.
The Australian Prudential Regulation Authority ordered banks in July to lift their total capital by 3.0 per cent of risk-weighted assets by 2024 instead of the 4.0 per cent to 5.0 per cent initially proposed.
CBA was also ordered by APRA in April last year to carry an additional $1 billion in regulatory capital after it was accused of wide-scale breaches of money laundering protocol.
The nation’s number one lender revealed a worse than expected 4.7 per cent dip in full-year profit in August – weighed down by a $1.2 billion royal commission-related hit – while chief executive Matt Comyn said things could get even tougher if the Reserve Bank delivered on expected interest rate cuts.
The RBA has cut three times in 2019 to a record low 0.75 per cent, with CBA only passing on the full 0.25 per cent reduction to mortgage holders in June.
It reduced its standard variable rate by 0.19 per cent in July and by 0.13 per cent earlier this month.
The net proceeds of the PERLS XII offer will be used to fund CBA’s business, the lender said on Wednesday.