CBA eases lending rules for property developers to boost housing construction

Commonwealth Bank has eased credit settings for property developers and is beginning to see signs of recovery in the construction sector.

CBA says it has seen some progress on housing starts since adjusting credit settings for property developers. Picture: Getty Images

Commonwealth Bank is beginning “to see progress” on housing starts since relaxing credit settings for property developers and says the worst may be over for the hard-hit construction sector as costs stabilise.

Speaking to The Australian days after the nation’s largest bank handed down a $9.8bn cash profit for the year, CBA head of business banking Mike Vacy-Lyle said the lender started to ease its lending settings midway through the year as it took a view that the cycle had reached its trough.

“We’ve had a look at some of our credit settings in that space to be a little bit more sympathetic to the fact that we need to get houses built,” Mr Vacy-Lyle said. “We have felt that we’ve probably been at the bottom of the property development cycle for a good couple of months now. So we started having a look at the space, and thought we’re probably coming through this now. That’s as input costs showed signs of stabilising – they remain high, but are showing signs of stabilising.”

Mr Vacy-Lyle’s comments come as the nation’s policymakers look to tackle the housing shortage and housing affordability crisis, with the Senate voting to launch an inquiry into the impact of financial regulation on home ownership.

The veteran business banker said CBA had adjusted its credit settings to support developers “to get property starts going again”.

“We are partnering with businesses we have known for a very, very long time in the development space, quality developers and subcontractors that we know have been able to weather the very tough market,” he said.

“There’s been many customers that we have funded through very, very tough periods, who have come out on the other end looking a lot better, and those are the ones that we will continue to support as the market starts to recover.”

CBA head of business banking Mike Vacy-Lyle. Picture: Nikki Short

Mr Vacy-Lyle said the banking giant was “starting to see progress” on housing starts since adjusting its credit settings.

CBA chief executive Matt Comyn last week expressed alarm at Australia’s housing shortage, warning renters were at the forefront of economic pain and calling for more housing to be built in areas of high demand.

As green shoots appear for property developers and the broader construction industry, Mr Vacy-Lyle warned other sectors continued to struggle with dampened demand, with small businesses and discretionary retail in particular still suffering.

“Those businesses are really feeling it but if you go up a level, and look at businesses that are more in the wholesaling (segment), in particular non-discretionary spend, and supply into non-discretionary spend, so wholesaling, manufacturing, these bigger businesses are resilient, and they’ve got proven resilience, having survived Covid In many cases. “They’ve got strong balance sheets because they came through Covid with cash balances. They’re now using those balances, and the banks are playing the role they should be, which is helping them fund working capital.”

CBA was seeing strong lending pipelines in this segment of the market, he added. Commercial property was also undergoing a recovery, Mr Vacy-Lyle said.

“As commercial property prices ease, people are starting to buy again. There is still demand for industrial property and some A-grade property, so we’re seeing prices come off and people re-entering the market, which has meant there’s a bit of demand around that.”

The business bank posted a cash profit of $3.8bn for the 2023 financial year, up 4 per cent as it grew lending 1.2 times system. Loan margins dipped slightly but Mr Vacy-Lyle said the bank was “very comfortable” with the margin performance given the strong lending numbers. Deposits grew 1 per cent over the year.

CBA shares rose 0.2 per cent to $138.42 on Monday, as peer Westpac jumped 2.3 per cent to $30.32 on a better-than-expected quarterly profit update. CBA shares have climbed 22 per cent this year.