CBA reports lift in lending

  • By Christine St Anne

Australia’s largest lender has reported above system growth in home lending while its investment in digital assets has driven a “standout” performance in deposit growth.

On Wednesday, the Commonwealth Bank announced its full year results which included solid volume growth in its core businesses including business lending. 

Source: CBA 

“We have been making sure we've kept very consistent home decisioning times during the course of the year has enabled us to again deliver a very strong home lending result at three times system,” CBA CEO Matt Comyn said.

Comyn acknowledged that the outlook for housing including house prices remained challenging adding that even the bank “has been surprised about the volume of applications” it has received for home loans. 

Business lending was up 5.1 per cent for the year and Comyn noted that this was the strongest growth compared to over the last two years. 

But for the bank CEO, the “standout performance” right across its core businesses as been in deposit growth particularly in the growth of transaction accounts. 

Deposits grew $25 billion, an increase of 9.8 per cent. 

“That's the most growth that we've ever seen by dollar value,” Comyn said adding that the growth positions the bank to have the strongest balance sheet. 

The bank’s chief financial officer Alan Docherty said that CBA managed to attract a lot of new customers during the current uncertain time. 

“We have seen that following the global financial crisis and we certainly seen that in the months following the Coronavirus in Australia,” Docherty said.

Both Comyn and Docherty also noted that the bank’s investments in digital assets has paid off with new account functionality attracting customers right across the business from retail to business to institutional.  

Comyn said the solid growth in the division also played to the strengths of many customers seeing the bank as its main financial institution.  

“The proportion of customers who are using us for their main transaction account has increased.”

Furthermore, a number of large institutional customers were also increasing their deposits to ensure they had enough liquidity on hand.  

In his assessment of the CBA result, Morningstar bank analyst Nathan Zaia said that a key source of CBA’s competitive advantage is its funding cost advantage, which again strengthened in the half off the back of the increased transaction accounts and deposits. 

He noted that the solid numbers across its core businesses in deposits and lending signals a flight to safety. 

“Having a large customer base and scale proving beneficial, as existing customers increase the share of dictionary income saved, but a flight to safety also likely taking place,” Zaia said.

On the lending front, Zaia added that consistent lending decision times is helping the bank capitalise on borrowers looking to refinance and buyers looking to act quickly while sale listing numbers were down. 

However, he noted that the short-term outlook for the bank is not pretty.

“But the banks scale will help it endure higher loan losses while remaining competitive on price and service, setting it up to generate strong returns on equity once economic conditions improve.

By the numbers

Net cash profit was $7.3 billion, a fall of 11.3 per cent and impacted by the $1.5 billion COVID-19 loan impairment provision beating Morningstar’s forecast by 9 per cent. 

According to Morningstar’s Zaia the actual impact on the banks earnings and capital position will only be clear once the shield (loan deferrals) is lifted and stress on the loan book can be quantified.

Statutory net profit, which includes gains from the sale of its wealth businesses was 12.4 per cent higher at $9.6 billion.

The bank’s Common Equity Tier 1 (CET1) capital ratio came in at 11.6 per cent, 90 basis points higher than a year ago.

At 11.6 per cent, the ratio was above APRA’s “unquestionably strong” benchmark of 10.5 per cent. 

The Board declared a final dividend of 98 cents a share which, added to the interim payout of $2.00 a share, makes a total of $2.98 for the full year.

Net interest income beat Morningstar’s forecasts by 2 per cent with the bank continuing to take market share in both home and business lending.