Mortgage competition is beginning to 'ratchet up' again: CBA's Comyn
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More news: Commonwealth Bank home loan arrears have tracked better than the bank forecast 12 months ago but there could be a "gradual deterioration" in arrears going into 2025, its CEO Matt Comyn told analysts on a briefing call following its full-year results.
Comyn added he was more "comfortable" with CBA's current mortgage pricing after the bank earlier lost market share due to aggressive discounting in the market.
What they said: "We felt the pricing was unsustainable at the start of the financial year [and] a significant proportion of that share loss came in the first half," Comyn said, adding that CBA had seen "slight growth" over the last quarter but that it remained wary.
"We've seen a little bit of deterioration on that front in the last month. A couple of players who had been a little more disciplined have started to ratchet up discounting again," he said.
"So we're certainly more comfortable than we were 12 or 18 months ago, but we are very watchful about margins and clearly that's going to be one of the big swing factors in terms of how margins will play out in [FY]25 and beyond."
CFO Alan Docherty said business banking margins had similarly declined as CBA chose not to engage in the more competitive behaviour rivals were adopting on large loans and deposits, but that it had not hurt overall volumes too much.
Asked why CBA was hanging onto so much reserve capital rather than paying out a greater share of profit, Comyn pointed to market conditions.
"Over the course of the last 12 months, we've bought back $1.5 billion worth of shares at an average price of $107 so I think from a shareholder's or a deployment of capital perspective that's been time and capital well spent," he said.
While ANZ and Westpac have written back their level of provisioning raised during the Covid-19 pandemic, CBA and NAB have largely retained theirs.
Docherty said the bank retained 80% coverage of a downside scenario of 25% price falls in Australian home prices.
"As we sit today, the level of provisions that we have on mortgages are significantly higher than the expected losses that we have under the central scenario, and obviously the central scenario is a very continued growth in house prices over the course of the next two or three years," he said.
CBA shares rise as second-half net interest margin impresses analysts
More news: Commonwealth Bank shares lifted on the ASX as the bank's annual profits beat expectations and its second-half net interest margin (NIM) impressed analysts.
CBA shares were up 0.8% to $133.56 by 10:45am AEST.
What they said: "We see the result as sound, with NIM and bad debts continuing to be resilient and tracking better than expectations," Jarden analyst Jeff Cai said.
"This should provide scope for positive consensus earnings revisions in FY25E, although we find CBA's valuation stretched," he noted. "Overall, the result should bode well for the sector as it reinforces the view that bank earnings continue to be resilience while the balance sheet is robust."
E&P Capital analyst Azib Khan said: "The positive is the NIM beat with the quarterly NIM now looking to be in an uptrend. While some investors were anticipating release of credit loss provisions, this has not been the case.
"The 2H24 credit impairment charge has come in a little lower than expected, however, asset quality metrics are deteriorating. The deterioration appears to be particularly concentrated in the Business Banking and NZ divisions."
Khan said he sees the potential for upgrades to consensus FY25 and FY26 cash earnings estimates of between 3% and 6% due to higher NIMs.
"However, we expect deteriorating asset quality metrics to weigh on sentiment," he noted. "We believe CBA’s result means a lower probability of provision releases on the horizon for the sector."
CBA beats expectations as margins stabilise
The news: Commonwealth Bank's annual profits beat expectations, even as Australia's biggest bank contemplated rising "cost of living pressures and a fall in real household disposable income".
The numbers: CBA posted a statutory net profit after tax of $9.481 billion for FY24, down 6% on the year prior but ahead of analyst expectations. Cash profit was $9.836 billion, which was also better than expected.
The bank's net interest margin (NIM) stabilised in the second half at 1.99%, down 8 basis points on last financial year "largely due to the impact of competition and deposit switching".
Operating expenses climbed 3% higher to $12.218 billion, with CBA blaming higher inflation, staffing costs, and increased technology spend.
Credit quality improved, with loan impairments expenses falling 7% in the half and 28% on the previous financial year.
CBA will pay a final dividend of $2.50, representing a full-year dividend of $4.65 fully franked, and above consensus expectations of $2.41.
The context: As Australia's largest bank, CBA is seen as a bellwether for the broader economy and sharemarket.
"The Australian economy remains resilient with low unemployment, continued private and public investment, and exports supporting national income," CEO Matt Comyn said.
"Higher interest rates are slowing the economy and gradually moderating inflation. Australia remains well positioned by downside risks continue around productivity, housing affordability, as well as ongoing global uncertainty."
CBA said it was well positioned with a Tier 1 Capital ratio of 12.3%, well above its own target of 11% and APRA's requirement of 10.25%.
Considered the main financial institution for more than 30% of Australians, CBA's results indicate how the average consumer is managing the tougher economic environment.
CBA noted consumer arrears were increased as a result of higher interest rates and cost of living pressures. Savings meanwhile were going backwards for every demographic below 55 years of age, with balances among 25-34 years olds falling 5.2%.
Australians aged over 65 meanwhile have enjoyed savings growth of 7%.
The bank had invested $800 million in scam protection over the last 12 months, reducing losses by 50%.
The source: ASX Announcement
