CBA chief Matt Comyn says a battle is brewing between banks chasing customer deposits

CBA chief executive Matt Comyn is unfazed by the looming intense competition for deposits and says his bank won’t feel compelled to match the offers.

Commonwealth Bank boss Matt Comyn says a shortage of deposits will force competitors to offer high rates that the lender will not necessarily feel compelled to match, and he also vowed the bank would no longer seek to grow loan volumes at any costs.

With the near-zero cost $188bn term funding facility of the pandemic era expiring by June, and as households dig deeper into their savings to cope with the higher costs of living, a fight for deposits will emerge among banks.

“Banks obviously have to replace that (TFF) and that’s going to put pressure on competing for deposits to lower the level of wholesale funding issuance,” Mr Comyn told The Australian after posting a record $10.2bn cash profit on Wednesday.

“I think it’s reasonable to expect an increase in competitive intensity on deposits in the year ahead.”

He said CBA’s balance sheet was in a very strong position, but “clearly, a number of our competitors we feel will have to compete pretty aggressively for deposits to offset some of the wholesale issuance they need to do”.

CBA’s net interest margin, a key profitability measure, fell 5 basis points to 2.05 per cent over the half, after peaking in October as banks rushed to pass on the sharp increase in the cash rate to mortgage borrowers while taking longer to increase deposit rates, resulting in a boon to profits.

However, bank margins were quickly hit by a fierce – and by some accounts “irrational” – fight to win customers as $350bn in fixed-rate mortgages were to roll off into new variable-rate loans with much higher rates.

The competition for mortgages has come down in recent months, as higher funding costs, including higher deposit rates, forced banks to focus on margins and less on volume.

That was after CBA led the charge in tempering the competitive drive of the sector and became the first big four bank to announce plans in May to withdraw its cashback offer. Most banks have followed suit, except for ANZ which has been incentivised to show exuberant and perhaps unsustainable market competition as it vies to win approval for its $4.9bn bid for Suncorp’s bank.

“We led the removal of cashbacks (and) we are not tending to participate to the same extent in just a straight out, you know, refinance across the market, which is still extremely aggressively priced,” Mr Comyn said.

“The majority of that would be going to the very small number of banks that still have a cashback offer, which I think will make it a pretty unprofitable business.”

“We are not prepared just to seek share for the sake of it, but we are very focused on sustainability over the medium term.”

Recent statistics from the Australian Prudential Regulation Authority showed home loan growth at Commonwealth Bank slowed to 0.3 per cent in July, half the sector rate, and below its major rivals. Mr Comyn said July would be another soft month for mortgage volumes.

The data showed that household deposits shrank by $7.7bn in June, the first contraction since May 2021, and analysts said the declining balances would trigger a push for higher deposit pricing.

Chief financial officer Alan Docherty said he was “feeling comfortable” about its fundraising plans in wholesale bond markets and said the bank had room to manoeuvre in case competition pushed deposit rates above what it was willing to pay.

“There’s further capacity there, for example if lending grows above our expectations or if we decide to step away from some aspects of deposit gathering if the pricing doesn’t meet volume-rate trade offs,” he said.

“We’re feeling comfortable about the funding task in the year ahead as we deal with the TFF maturities.”