Commonwealth Bank rides high on business bank lending
Commonwealth Bank's aggressive push into business lending has paid off, with the division now generating 40 per cent of the group’s profits amid low default levels.
Commonwealth Bank’s commercial lending arm is thriving, delivering 40 per cent of the group’s $10.25bn full-year cash profit and carrying little to no troubled debt on its books, despite the economic slowdown.
The banking giant ruled off its full-year earnings on Wednesday, marking a $302m jump in earnings from its business banking division.
The high-water mark for the business division comes five years after business bank boss Mike Vacy-Lyle started in the role, with the South African banker noting CBA was now extending its lead over its nearest rival National Australia Bank.
He credits the success of CBA, which now banks 27.3 per cent of businesses in Australia, to “steady and very disciplined growth”.
CBA has pushed into a market previously dominated by NAB, elbowing away smaller regional rivals. Over the past year CBA lifted business lending 11 per cent, with almost $161bn doled out to commercial customers.
Mr Vacy-Lyle said the bank’s strategy, including doing more non-property-secured lending, was proving a hit. Despite all this, CBA has managed to keep business losses low, at a time when thousands of companies are falling over.
Loss rates fell from 18 basis points last year to 14 basis points, with Mr Vacy-Lyle noting this reflected CBA’s ability to maintain “good credit quality”. “What we’ve done is been very diligent in our credit standards we’ve had through the cycle,” he said.
“It’s been particularly benign.”
CBA has previously been scorched by corporate collapses, including the failure of Melbourne home builder Porter Davis, which slipped into liquidation in 2023, owing the bank $33m. But the bank said it was focused on growing its lending into construction, with 6 per cent growth in the portfolio over the half.
Mr Vacy-Lyle said CBA was also looking to lend more into the regions and get in on the ground floor in the Brisbane market ahead of the Olympics.
He also singled out Western Australia and the state’s office and industrial property markets as a focus. But the veteran banker warned Victoria’s sluggish economic conditions had kept CBA at bay. “Victoria remains a bit challenged; we’re watching closely when we start to see an opportunity to grow well above system,” he said.
The commercial property market has suffered amid higher interest rates, with valuations squeezed. But Mr Vacy-Lyle said the non-discretionary retail markets, supermarkets and hardware stores, were still a winner for CBA.
Rivals NAB and Westpac have both announced plans to push into the agribusiness market, reopening branches in country towns the lenders previously quit.
But Mr Vacy-Lyle said in many cases CBA was and remains the last bank in town, something which was planned to sit by a regional push from the bank.
“We think there’s a lot more to be done, we think we can grow above system into agri,” he said.
“We’re going to do more with what we’ve got.”
The broad banking sector has been focused on business lending amid red-hot competition for home loans, which have crushed net interest margins.
CBA revealed it lifted its lending margins 9 basis points over the last financial year, topping 2.08 per cent.
Banking major Macquarie has talked up plans to push into business banking along the lines of its forays into retail banking and home lending.
But Mr Vacy-Lyle said while CBA was watching Macquarie “with interest”, it was yet to make a mark outside of real estate.
CBA’s business bank also has a key role to play with its business clients, handing out payment terminals across the market.
However, Mr Vacy-Lyle cautioned that Reserve Bank proposals to heavily intervene in the payments market — including banning payment surcharges and cutting the card interchange fee by 50 per cent — could prompt banks to scale back investment.
He said banning surcharges was “in the interest of the consumer”, but he cautioned the interchange fee changes risked knock-on effects.
“What banks offer in terms of the credit card experience will be greatly depleted and cost of credit will go up which will have a negative impact on small business,” he said.
“If you can’t generate economic returns, it’s not going to be an area you invest.”
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