The bank that wants to topple NAB's position
Commonwealth Bank is out to snatch the title of Australia’s biggest business bank from NAB.
Last week’s full-year result from CBA included the business banking division’s best-ever performance – but Mike Vacy-Lyle, group executive for business banking at CBA, wants more.
“We want to be the leading business bank in Australia,” Vacy-Lyle told The Australian Financial Review. “When I first arrived, everybody said business banking is the red star bank, they’re the business bank. But that has absolutely changed.”
Last week, CBA’s business banking unit reported 12.1% growth in lending for the year to $11 billion in new loans – a rate more than three times business credit growth, according to AFR. Its market share has grown from 14.7% to 15.6%.
However, CBA still trails behind National Australia Bank in business banking. Last week, NAB reported quarterly figures showing a 4.3% increase in lending.
But Vacy-Lyle said CBA is closing the gap. He said that while some of CBA’s gains have come at the expense of competitors like ANZ and Westpac, he believes the bank is catching up to NAB.
“Are we doing so well because the others are doing so poor? There has probably been a bit of that,” he told AFR. “But look at the scoreboard. The last time I checked, they were only about $10 billion bigger than us in total business lending, so if we are growing at three times what they are, then we are closing the gap.”
Data from the Australian Prudential Regulation Authority shows the gap as of June was $34 billion when measured as loans to non-financial businesses, and $41 billion including loans to financial businesses. However, 12 months earlier that gap sat at $38 billion and $47 billion, respectively.
CBA is pursuing business in areas it previously ignored, such as manufacturing, AFR reported. Vacy-Lyle said the bank is also making “good inroads” on health and agriculture, key target markets for NAB. He said that CBA was a “proper business bank” now.
The bank is paying for that growth with increased investments, however. Last week’s numbers revealed a 26% hike in investment to $1.8 billion. Vacy-Lyle told AFR that the investment hike was necessary but said the rate would slow.
“It’s not going to continue forever,” he said. “It’s digital everything where we are going. We’ve got to make sure we can keep up with that, or else there will be more Afterpay-type examples.”
Income for the business banking division was up just 1%, contributing to a 240-basis-point hike in the cost-to-income ratio and a 10-basis-point slide in the profit margin. However, Vacy-Lyle said that the performance of the business will be muted while rates are low – but once they start rising, the division will take a leap forward.
“Everybody says, ‘Well, yeah, you’ve taken share in business banking, but you haven’t seen the revenue line grow there yet.’ Rates are going to move, and they are going to move soon – and when they do, this franchise jumps,” he told AFR. “This business delivers in a way you have no idea. When rates move my income statement goes bananas, but you’ve got to build the franchise first.”
Vacy-Lyle agreed with CBA chief Matt Comyn’s assessment that current lockdowns had likely pushed out projections for growth rather than destroyed them, AFR reported.
“This lockdown has dented confidence, but our pipelines are full,” he said. “The pipelines give us visibility that we can sustain this growth into 2022. I’m a big believer that rebound will be strong.”