Home loan competition ‘intense’, says bank
CBA has confirmed a cash net profit after tax of $2.6 billion for the third quarter of the 2023 financial year.
Home lending grew by $6.9bn, with the bank reporting one times’ system growth for the 12 months to March 2023. Home loan arrears were still low at 0.44%, and consumer finance arrears marginally increased.
In a trading update for FY23 released on Tuesday, the bank confirmed that cash net profit after tax (unaudited) of $2.6bn was up 1% on the quarterly average for the first half of FY23 (up 3% with day-count adjustments). NPAT is 10% higher than the prior comparative quarter the bank reported.
Loan impairment expense was $223m in the quarter, representing 10 basis points of average gross loans and acceptances.
Net interest income was 2% lower than the quarterly average of the first half of the 2023 financial year. Volume growth was offset by lower net interest margins, which CBA said was primarily from “continued competitive pressure in home loan pricing” and customers switching to higher yielding deposits.
Operating income was flat in the quarter, and household deposits grew by $6.2bn. Non-interest income was 11% higher, which CBA said was primarily driven by higher trading income and the non-recurrence of losses from equity accounted investments in the previous half-year.
CBA CEO Matt Comyn (pictured above) said the bank remained “committed” to supporting customers as they felt the strain of higher interest rates and the rising cost of living.
“While economic growth is expected to moderate, Australia is well positioned to deal with the domestic and global challenges, given the country’s strong banking system and other economic tailwinds (such as population growth and relatively high commodity prices),” Comyn said.
The bank remained positive on the medium-term outlook, he said.
“The strength of our balance sheet means we are well placed to continue supporting our customers and the broader Australian economy while delivering sustainable returns to our shareholders,” Comyn said.
Home lending grows at 1x system
The bank reported home loan growth of $6.9bn, or one times’ system for the 12 months to March 2023, with a focus on “retaining existing customers in a highly competitive market”.
“Excluding strong growth in our new digital-only proprietary offering, Unloan, and Bankwest, CBA grew at 0.8 times’ system,” CBA reported.
High competition in home lending drives rate discount
Competition for home loans “remained intense” in Australia and New Zealand, CBA said in the quarterly trading update. Over the past year, the average discount received by the bank’s existing standard variable home loan customers in Australia increased by “approximately 50 basis points”.
Arrears remain low but expected to increase
CBA confirmed that home loan arrears were 0.44%, which it said reflected low levels of unemployment and stability in savings buffers.
Consumer finance arrears increased marginally during the quarter but remained low relative to long run average loss rates, the bank said.
CBA said it expected arrears rates to increase further as the full effects of interest rate increases are borne by borrowers in the months ahead.
Retail transaction accounts increase
Within the retail bank, CBA confirmed that 463,000 new retail transaction accounts opened in the quarter, up 33% on the prior quarter.
This included a significant number of new migrant transaction accounts which were opened in the quarter, 50% higher than pre-COVID levels, the bank said.
Highlights of the quarterly results are as follows:
- NPAT $2.6bn (unaudited), up 1%
- Home loan growth of $6.9bn, 1 x system for the year to March 2023
- Loan impairment expense of $223m, with collective and individual provisions slightly higher
- Income flat, driven by volume growth and higher non-interest income, offset by two fewer days in the quarter and lower net interest margins from competitive pressures
- Expenses flat on headline basis, down 1% excluding remediation
- Operating performance flat on the 1H23 quarterly average (up 2% on a day-weighted basis)
- Total credit provisions of $5.7bn, with a slight increase in collective provisions and a $82m increase in individual provisions
- CET1 (Level 2) ratio of 12.1% (under APRAs revised capital framework)’, unchanged in the quarter. This represents an $8.7bn capital surplus to the minimum regulatory requirement.
