Commonwealth Bank of Australia (ASX: CBA) has followed the lead set by rival Australia and New Zealand Banking Group (ASX: ANZ) to lift the interest rates on loans for property investments.
In response to the stricter capital requirements announced by the Australian Prudential Regulation Authority (APRA) earlier in the week, Commonwealth Bank is lifting the interest rate on variable investor loans by 27 basis points (the same as the increase announced by ANZ) to 5.72 per cent, as highlighted by the ABC. It will also lift fixed rates on new investor loans by between 0.1 per cent and 0.4 per cent, whilst reducing the rates payable on most owner-occupied loans.
Recognising the need for our major banks to be "unquestionably strong" in case of another economic downturn, APRA issued tighter capital restrictions on Monday this week. The banks will need to raise an estimated $11 billion (or more) to satisfy the requirements with Commonwealth Bank expected to raise in excess of $3 billion.
It is probable that those additional costs will be passed on to shareholders in the form of lower dividends or capital raisings, whilst some will also come at the expense of the bank's customers.
As was also the case with the ANZ Bank, Commonwealth Bank has reportedly stated that the changes being implemented are an attempt to rebalance the loan portfolio between property investors and owner-occupied borrowers.
It is currently unclear whether National Australia Bank Ltd. (ASX: NAB) or Westpac Banking Corp (ASX: WBC) will lift their own rates, although investors shouldn't be too surprised if they do.
The takeaway for investors
If there is one thing that investors should take note of it is this: Australia's Big Four banks are not immune to the economic cycle.
While they have thrived off a low interest rate environment and solid loan growth in recent years – and generated huge returns for shareholders in the process – they are by no means risk-free, hence the additional restrictions being set in place by APRA.
At the current prices, the banks are not cheap and investors would be wise to explore other investment options as a safe alternative.
