CBA primed for vaccine supercharger

The Commonwealth Bank rode what’s best described as the perfect non-storm down to Christmas.

What sort of 2021 now faces our biggest and most profitable bank turns almost entirely on the ‘Godot’ vaccine. Picture: AFP

The Commonwealth Bank rode what’s best described as the perfect non-storm down to Christmas and very attractive profit figures for the December 2020 half year.

Like everything for everyone, what sort of 2021 now faces our biggest and most profitable bank turns almost entirely on the “Godot” vaccine.

As I’ve been explaining, if the vaccine “works” — not just in terms of beating or at least taming the virus but also in the economic sense of allowing us to fully open up the economy without any risk of snap, or worse, extended 2020-style lockdowns — all the stimulus out there will supercharge the back end of 2021 and probably 2022 as well.

The same applies to the financial sector overall but especially the CBA as the — way, way out in front, and pruned and primed to go — market leader.

We shall, of course, have to see as the vaccine gets rolled out through March and beyond.

Given the lag to evidence of its effectiveness, this — if it works — supercharged economy, financial sector and bank profitability will be a story for the December half.

CBA CEO Matt Comyn. Picture: Adam Yip

The CBA’s latest numbers provide both a taster and a pointer.

It was all built — thank you very much governor Philip Lowe — around the Reserve Bank’s 0.1 per cent policy framework.

The RBA is lending the banks money at that 0.1 per cent.

So far the CBA has taken $19bn. It can take up to $41bn and will do so before the end of the financial year.

It gets the money for three years at, to repeat, 0.1 per cent.

It can lend it out to home buyers charging at least 2 per cent. That’s a minimum raw margin of at least 1.99 per cent.

The RBA is also keeping its official interest rate at the same 0.1 per cent and acting to keep the yield on three year bonds also at 0.1 per cent.

All this plays directly into what the banks are paying on deposits — as you very well know — somewhere between zero and not much more.

The CBA is now getting a staggering 75 per cent of its money from depositors. That’s the highest percentage this century and it’s almost free money.

Add on the $19bn going to $41bn from the RBA at even closer to free money 0.1 per cent and it’s hardly surprising that it made the sort of profit it unveiled yesterday.

Then add on the buoyant banking scene — starting in the September quarter when things were nowhere near as grim as they had looked in the June quarter, and then really roaring in the December quarter when Victoria joined the rest of the country.

At the end of 2020, CBA’s home loans still on “virus deferral” had dropped a thumping 133,000 to just 25,000.

Even more spectacularly amazing was the drop in business loan deferrals — from 83,000 to just 2000.

This played into very modest bad debts and strong organic growth in banking, with CBA adding to that by taking a share from its three rivals — not just in home loans but very significantly in business banking.

In the month of December alone, CBA wrote a thumping $3bn in home loans — the biggest figure in 10 years.

Thanks to the royal commission — whose pain on the numbers is now finally fading — CBA chief Matt Comyn now has the bank slimmed to essentially just three arms: consumer (home loans), business and institutional. Critically, Comyn has oriented it significantly to a digital base.

This positions it perfectly to super-profit from any volume surge off the RBA’s guarantee of a 0.1 per cent rate world through 2024.

If the vaccine delivers.

Which is also critical to avoid a relapse when JobKeeper ends end-March.

Originally published as CBA primed for vaccine supercharger