CBA halts an exodus of home loan customers with strategic pricing

CBA has defended its dominance in the home loan market after months of share losses with slightly sharper pricing and sophisticated systems.

Commonwealth Bank chief executive Matt Comyn.

Commonwealth Bank has managed to plug the leakage of customers from its key home lending business, as slightly sharper pricing and sophisticated systems helped it defend its dominance after months of market share losses.

It lost 0.45 percentage points of market share to smaller rivals ANZ and Westpac in the four months to September due to its refusal to match generous cashbacks and lower rates.

The nation’s largest bank managed to achieve a very marginal lending increase in October.

Official data from the Australian Prudential Regulation Authority (APRA) on Thursday showed CBA’s mortgage book grew by a modest $63m in October compared to the previous month.

Its home loan lending balance of $542.2bn is still $4bn below its June level, falling short of what’s needed to repair recent attrition in its mortgage book.

The bank has lowered its pricing slightly after having the least competitive home loan offers, according to market analysts. Sophisticated systems that allow CBA to offer fast, consistent pricing decisions directly to customers and through brokers might also have helped, analysts said.

“There’s been a lot of talk in the market that it’s only a matter of time before CBA sharpens their pricing and tries to get market share again,” said Azib Khan, the head of Australian banking research at E&P Capital.

“My view is that actually CBA will continue to be quite sensible about this. It has a really sophisticated pricing engine that monitors hundreds of data points every week and is focusing on optimising net interest income, not market share.”

For most of 2023, ANZ has been offering the cheapest home loans on top of cashbacks, to capture the largest share of the wave of refinancing. That has been followed by Westpac, which still offers modest cashbacks on some of its brands.

NAB and CBA have been at the other end of the spectrum, focusing on protecting their margins at the expense of growth.

In the past few months, however, CBA has been seen sharpening its pricing slightly relative to NAB, while the Melbourne-based lender has increased some of its rates.

Rates vary widely, but in general terms the lowest rates are now being offered by ANZ, followed by Westpac, then CBA and NAB, according to RateCity research director Sally Tindall.

Earlier this month, CBA chief executive Matt Comyn said he was in no rush to offer home loan borrowers better deals to compete with ANZ and the other big banks that were taking away its customers.

The gains, even if marginal, showed the bank’s sophisticated approach to the competitive environment, which Mr Comyn has called “value destructive”. While it has used pricing to defend its market share in mortgages, which currently sit at about 25.3 per cent, according to UBS, it has also used other levers.

“CBA is relatively quick on turnaround and pretty good with consistency of credit decision, so those factors help. And because they sharpened their pricing a little bit relative to NAB in the last couple of months, that’s helped them stop the contraction,” Mr Khan said.

Mr Khan said that given CBA was likely to maintain discipline, competition was likely to continue to be a feature of the market next year, but it was unlikely to increase in the near future.

This will no doubt be welcome news for bank shareholders, and less exciting for mortgage borrowers facing sharp increases in the cost of their mortgages at a time when high prices are hurting household budgets.

CBA shares closed 1.3 per cent higher at $104.66, outperforming all other banks and the wider market, which closed 0.74 per cent higher.