Big messages in Commonwealth Bank’s figures

The Commonwealth Bank result is the most comprehensive and most up-to-date microcosm of Australians and Australia overall.

Commonwealth Bank chief executive Matt Comyn.

The Commonwealth Bank result is the most comprehensive and most up-to-date microcosm of Australians all and Australia overall.

It tells us about the CBA as a business; about the state of banks and banking more broadly; their customers, home loan and business borrowers both, how stressed or not they are; and so also the overall state of the economy and where it’s heading.

Much of this is drawn together and summarised in CBA CEO Matt Comyn not joining any call for RBA Governor Michele Bullock to cut interest rates.

On one side, nothing in the bank numbers indicates to him an economy that has or is in the process of hitting the wall.

Indeed, loan losses among consumer borrowers through the December half were at their lowest in the post-GFC years – apart, that is, from the two Covid years when borrowers essentially weren’t defaulted.

Business loan losses actually went down June-half to December-half, to levels among the lowest in the post-GFC years. The second element driving Comyn’s endorsement of Bullock and her board is the core issue of inflation. That, quite simply, it was in everyone’s interest to get inflation down to (the 2-3 per cent) target.

Again, the CBA numbers showed what every business in Australia was experiencing: expenses up 4 per cent, mostly due to wage rises. But, for CBA, partly offset by productivity gains. That’s what we need, obviously, for every business, for the economy overall, and indeed for all individual Australians. Productivity gains that pay at least partially for the wage rises and so limit the consequent inflation impact. And so, with lower inflation, workers would get real wage rises, with wages growing faster than prices.

As a business, CBA was, finding and fighting competition within that broader economy envelope.

Over the half, it met the aggressive marketing of the other three big banks, and especially the ANZ intent on building its consumer banking from fourth in a field of four.

But, it met it only up to a point. So, yes, its NIM – Net Interest Margin, the (overall) difference between what it charges borrowers and pays depositors – fell 6 points to 199 points (1.99 per cent).

Customers, mostly the borrowers, got the benefit, in a rising-rate market. But it was prepared to limit margin loss by ceding some market into the aggressive interest rate and loan incentives price-cutting.

The CBA’s home loan market share edged down about half-a-per cent to just below 25 per cent. This balancing act between cost increases, meeting competition, but only going so far – and all, in a rising rate but still solid overall economy delivering growth – played out in the 3 per cent fall in profit from the December 2022 half.

Despite that, dividend was edged up – a very strong indication that both management and the board were confident on maintaining its pre-eminent profitability position, while executing again that balancing act between profit and market share.

It also, importantly, indicated management and board confidence in the economy through 2024 and so Bullock and her board successfully executing her/their own balancing act.