Above the turmoil, Commonwealth Bank is sailing along

Commonwealth Bank CEO Matt Comyn.

Fixed rate mortgages are proving popular, accounting for around 40 per cent of new home loans for the CBA, which like all the banks likes fixed rate loans.

If a customer takes out a four year mortgage he or she is stuck there and is not about to jump ship to another member of the banking oligopoly.

Releasing first-quarter financials on Wednesday, CBA said deposits had jumped $15.8 billion in the last three months to $580 billion, which is funding 74 per cent of all loans.

The banks don’t pay out a lot on deposits and can borrow from the RBA at 10 basis points. So if you take one of the new CBA four year mortgages at 1.99 per cent the bank, the profit on the deal works out at around 100 basis points.

The mortgage broker would probably get around 35 basis points and then there are bank costs to look after. But in the scheme of things given you are stuck on the rate for four years, can’t flee to a competitor without paying a fee and can’t cut the size of the loan that fixed period loan means the bank is doing OK.

There is of course nothing wrong with banks making money and in fact the country needs profitable banks. But the dynamics at play should be kept in mind next time the bank tells you it is here to help.

Even so, CBA’s first quarter profit was down 16 per cent on year ago levels at $1.8bn yet chief executive ‘Magic’ Matt Comyn was understandably happy with the state of play.

He has the bank operating very well increasing home loans at double system growth rates and business loans at more than double system. The bank tops all the right categories in terms of net promoter scores and is the only big bank to record a positive score for its retail operation.

Net promoter score measures how likely it is you will recommend the bank to a friend so a negative score means you will tell the friend not to bank with CBA.

NAB has long boasted of its industry leading negative NPS, which was adjusted last week to being second place behind CBA at negative 11 per cent.

Comyn noted deferred loan balances have shrunk to just 2.9 per cent of all home loans down from 10.8 per cent in June.

This shows people who deferred their loans are now paying them back.

The banks of course did okay from the deferred loans because the interest bill kept ticking higher while you were not paying back the debt.

Comyn acknowledges the big test comes in the second quarter of next calendar year because that’s when the government handouts stop.

But as things stand the economy from the bank’s perspective is in reasonably shape.

ends