CBA boss Matt Comyn upbeat but small business doing it tough in pandemic

Students wait their turn to receive their first dose of the Pfizer vaccine in Sydney’s western suburbs. Picture: AFP

Commonwealth Bank’s chief executive Matt Comyn struck a note of optimism amid a sea of Covid-induced gloom, reporting a stronger than expected 20 per cent rise in cash profit and a $6bn share buyback.

As NSW reported another 344 Covid cases and two more deaths, with the prospect of lockdowns in the Sydney area extending for weeks and the Melbourne lockdown continuing, Comyn declared his confidence that the economy would improve as soon as the Covid lockdowns ended.

The recent lockdowns, he said, had just pushed back expectations of a continued upturn by six months.

The economy could be expected to rebound in late 2021 and be “growing strongly” next year, the bank said.

Comyn cited a mixture of factors including high levels of household savings, low unemployment as a result of labour shortages (partly due to borders restrictions), ongoing fiscal and monetary stimulus, a strong housing market and a continued rollout of the vaccine as factors behind its upbeat outlook.

“While the Australian economic recovery continued strongly throughout most of FY21, the pandemic continues to have an impact on the health of our communities,” he said.

“The ongoing rollout of the vaccination program and government support packages will be important to help Australians and the economy on the path towards full economic activity.”

He pointed out that deferred mortgage payments were nowhere near the peak of 158,000 last year and were down to around 6800 at the end of July.

Applications for loan deferrals of 800 a day last year were now down to only 300 to 400 a day.

If anything, CBA customers were spending less and paying down their debt in the face of the pandemic.

The country’s largest bank also reported that its loan impairment charges fell from last year’s $2.5bn to $554m (down 78 per cent) “reflecting an improvement in economic conditions and outlook”.

Its loan loss rate was down to seven basis points, from 33 basis points in fiscal 2020.

The bank’s results were a factor in pushing the sharemarket up to another record high with the ASX 200 closing at 7584 after having hit an all time high of 7615 during the day’s trading.

The good news is that the CBA has reported a strong result during a “challenging” year.

Like the country’s other big banks, it is in a strong capital position which has been improved thanks to tight management and asset sales which generated more than $6bn since 2018.

The decision to withdraw from the insurance and wealth management business, in the wake of the harsh spotlight of the banking royal commission, has put it in good stead as it comes to terms with a pandemic that just doesn’t seem like it is going away.

The bank continued to be a strong lender in its traditional home loan area, growing by more than “system” and strongly increased it footprint in the business banking area which grew by three times the system.

In short, the bank is in a reassuringly strong position to weather what ever the pandemic will throw at it.

If anything, the banking system has emerged from the royal commission stronger than it went into it, benefiting from higher capital levels and exiting wealth management arms which never quite worked culturally with banking.

Moody’s reflected the market’s attitude towards the CBA results, which it said highlighted “the strong rebound in the Australian economy from the initial impact of the Covid-19 pandemic”.

“While the reinstatement of lockdowns creates some uncertainty around future asset quality trends, the outlook remains stronger than last year,” it said.

Moody’s expected the bank’s net interest margins, which were down four basis points, would remain under pressure from low interest rates and intense competition.

“Still, CBA’s record of above-system growth has continued in its home loans and business loans, and is a key support to profits.”

“The bank’s capitalisation remains strong despite a planned $6bn share buyback, the third major bank to do so in the past month.”

CBA’s Common Equity Tier 1 capital ratio of 12.1 to 12.2 per cent, it noted, was well above APRA’s benchmark of 10.5.

That said, Comyn’s justifiable positivity about his bank’s performance had elements of being in a parallel universe as the grassroots gloom of lockdowns grips the country’s two largest cities.

With a large contingent of workers in the hot spot areas of Sydney where Covid seems rampant – and a commitment to lead the way in providing vaccinations for its staff – Comyn cannot be accused of being out of touch.

The fact is that the Australian economy has been resilient in the face of some 18 months of economic shocks due to Covid.

The question is where now from here? Yes, the economy has done a lot better and has been a lot more resilient than expected.

But the latest round of lockdowns with no real plans to reopen the economy are taking their toll on small businesses.

Fiscal support levels are not what they were last year and the view six months ago that things were on the turn have evaporated.

While the top end of town has been doing OK, small business is now getting stretched.

Financial results are by definition backward looking.

The good news is that the CBA’s results highlight the strength and resilience of the banking system.

But with the upbeat mood which prevailed only months ago now crashing, not everyone would agree with Comyn’s optimism.

As a key business leader he has a role in projecting some optimism, But the real determinant of Australia’s economic position will be how well it handles the virus.

The problem is that in some states at least it is now looking like there are now no easy answers for even the most diligent of health officials and politicians.

Having delivered an unexpectedly strong result, Comyn is taking a determined glass half full approach.

Let’s hope he’s right.