Fierce competition for mortgages mean banks are chasing unprofitable loans, CEO says
The head of Commonwealth Bank has called out rival financial institutions for going after risky and unprofitable loans as mortgage price competition becomes fiercer.
CBA avoided participating in “elevated levels” of price competition for mortgages in the six months ended June 30, CEO Matt Comyn said.
Comyn said that wait-and-see attitude was the reason CBA’s mortgage growth of 7.4% for the fiscal year was slightly below the average of its peer group, The Australian reported.
“Some of the offers that are in market are well below the cost of capital … it doesn’t tend to remain the case for a persistent period of time, but we’ll have to see,” Comyn said. “We’ve been conscious … the most recent [loan] origination cohorts are also higher risk given the cycle we’re in.”
Comyn said one competitor was still offering up to $6,000 cash back on mortgages. He said CBA was constantly assessing factors in the mortgage market including volume, pricing and risk.
The bank is positioning itself to hold on to fixed-rate mortgages that are set to roll over to much higher variable rates in the near future. CBA projects a monthly peak of $11 billion for fixed-rate changeovers in June, The Australian reported.
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Across the banking sector, there are $500 billion in fixed-rate mortgages nearing expiration – meaning banks will ramp up efforts to win new customers and retain existing ones. Many borrowers who took advantage of record-low fixed rates in 2020 and 2021 are now facing the prospect of dealing with much higher rates after four consecutive hikes by the Reserve Bank.
Comyn said he expects housing credit growth to moderate between 3% and 4% this financial year as rate hikes weigh down demand, The Australian reported.
On Wednesday, CBA announced cash net profits after tax of $9.6 billion. The bank also announced it had seen a 13.6% spike in business lending.
