CBA ditches mortgage cashbacks as competition hits profits

Commonwealth Bank chief executive Matt Comyn says the bank is striking a balance between chasing growth and preserving shareholder returns after it decided to stop paying cashbacks to win new home loan customers.

The country’s biggest lender rounded off the bank earnings season on Tuesday with a $2.6 billion unaudited profit for the third quarter, in a trading update that analysts said suggested its profits peaked late last year.

Like its rivals, CBA’s update highlighted the pressure on its margins from stiff competition in mortgages, prompting the bank to rein in the most aggressive of its measures to win market share. From June 1, CBA will no longer pay $2000 cashbacks to new customers.

“As higher interest rates impact the Australian economy in the period ahead, we expect economic growth to continue to moderate,” CBA chief Matt Comyn said.Credit: Natalie Boog

Comyn said on Tuesday that competition had moved in cycles in the past, and the bank was prepared to make changes in how it competed with rivals.

“We will try to strike the right balance,” Comyn said. “Obviously, we’re very focused on our existing customer base, and we want to make sure that we’re competitive in [the] market, we have to be.”

CBA’s move to rein in cashbacks, which was first reported in the Australian Financial Review, comes after Westpac chief Peter King and National Australia Bank Ross McEwan both said in the past week their banks were prepared to grow more slowly in mortgages to preserve returns.

CBA and its rivals also cut their interest rate discounts on no-frills home loans in March, and Comyn said in February that banks were writing loans at below their cost of capital.

Comyn said the fierce competition in home loans had dampened the impact of rising interest rates on customers, but over the past two decades, competition had often broken out in certain products before the market returned to a long-term equilibrium.

“It remains to be seen how that plays out over the remainder of this year,” Comyn said.

“But whilst we expect it will continue to be really competitive, we’ve certainly been prepared to make some changes about how we compete.”

Given CBA’s size – it has one in four home loans - the bank’s changes can often have a major impact on competitors. RateCity’s research director Sally Tindall said other banks could follow CBA and scrap cashbacks in coming months, but on the other hand, maintaining the promotions could support growth.

Tuesday’s trading update from CBA also acknowledged more customers were starting to fall into financial stress as they grapple with higher living costs and rising interest rates.

CBA said the proportion of its customers falling behind on their mortgage repayments remained low at 0.44 per cent, up from 0.43 per cent in December.

Arrears on personal loans rose 14 basis points to 1.09 per cent, while credit card arrears rose five basis points to 0.51 per cent. The bank said these levels were low by historical standards, but it expected more customers would fall into arrears in coming months.

Comyn said the global economic outlook was “challenging” and higher living costs were affecting customers, but the bank had a positive outlook over the medium term.

“We remain committed to supporting our customers through these challenges. As higher interest rates impact the Australian economy in the period ahead, we expect economic growth to continue to moderate.”

The trading update rounds off a series of bank profit results, which have shown Australia’s banking giants’ profit margins peaked in late 2022, after rising due to higher interest rates.Credit: Paul Rovere

CBA said it had $8.7 billion in surplus capital above the regulatory minimum, with common equity tier 1 capital of 12.1 per cent of risk-weighted assets.

CBA shares were down 0.1 per cent in early afternoon trade.

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