CBA unfazed by loss of market share, won’t be rushed into offering better deals

Matt Comyn says the largest of the big four lenders it’s not in a rush to offer better deals to customers, even though it is losing market share.

Commonwealth Bank of Australia. Picture: NCA NewsWire/Bianca De Marchi

Commonwealth Bank chief executive Matt Comyn said he’s in no rush to offer home loan borrowers better deals to compete with ANZ and the other big banks that are taking away its customers.

Delivering a quarterly earnings update, said he was “bewildered” by the pricing strategies of rivals, which he described as “value destructive”.

“In banking, it’s very important to remember that margins are a higher determinant of (profitability), or more important than volume,” Mr Comyn told The Australian.

“And we want to maintain that discipline and consistent approach to, of course, supporting our customers but not aggressively competing in portions of the market where we don’t think the risk adjusted return profile is commensurate with what our investors or owners would expect of us.

“We are prepared to participate less and wait to see how the market evolves and make sure that we’re maintaining a consistent and disciplined approach through this cycle.”

CBA has stepped back from one of the most competitive mortgage markets in recent history, as banks vie for a dwindling customer base while an avalanche of cheap fixed-rate loans come due and need to be refinanced at higher rates.

CBA was capturing some of those customers, but in May became the first lender to withdraw generous cash back offers for new customers. The bank is now under mounting pressure to do something about the resulting loss of market share.

On Tuesday, CBA said its home loan balances shrunk by $4.5bn during the quarter, while group net interest margins – a key measure of bank profitability – had been hit by ongoing competition for deposits and customers switching to higher yielding deposit products.

The update said, however, that margins in its home lending unit had “stabilised” in the quarter. It did not publish a NIM number.

In frank comments about a competitor, Mr Comyn suggested ANZ, which alongside some Westpac subsidiaries are still offering generous cash-back offers to gain new customers, was pursuing a mortgage pricing strategy that was destroying shareholder value.

“I think if you look across the peer results, you can see the impact of net interest margins reducing or weighing on shareholder expectations,” Mr Comyn said. “The return profile is value destructive,” he said.

“And of course ANZ yesterday had a very substantial reduction, in particular, their divisional net interest margin.”

ANZ on Monday became the last of the big four banks to unveil its yearly profits, revealing cash earnings rose 14 per cent to a record $7.4bn.

But that result included a fall in ANZ’s group net interest margin from 175 basis points in the first half of the year to close at 165 basis points, which was mainly driven by a seven-point impact from Australian and New Zealand housing loan ­pricing.

In the release on Tuesday, CBA said it was pricing mortgages at rates that “ensured marginal shareholder returns remain above the cost of capital in a highly competitive market.”

Banking analysts at Citigroup said the result had been “relatively in line” and calculated the bank’s margins had remained resilient at about 2.3 per cent.

At Jefferies, however, banking analyst Matt Wilson was not so upbeat, tipping “CBA’s disciplined approach to volume/ margin will disappear with a blink”.

CBA shares rose as much as 1.3 per cent in morning trading at $102.59, before paring back gains to close up 0.9 per cent at $102.28.

Mr Comyn also said Australians were “feeling under pressure in the current environment”, with interest rates having increased by 4.25 percentage points since May last year, from near zero to 4.35 per cent.

“Our customers are continuing to take practical steps to navigate through a period of tighter household finances,” he said. “While some remain well positioned, we recognise that others are finding the higher costs of living very tough,” he said in the statement.

The average Australian mortgage has seen monthly repayments increase to $4151 a month, from $2570 a month since April last year, according to Canstar.

The bank booked a loan impairment expense of $198m during the quarter.

However, customer arrears, while slightly higher, remained “at historically low levels” thanks to a strong labour market. Loan impairments had actually shrunk modestly.

Mr Comyn said the bank remained “optimistic on the medium-term outlook”.

“The Australian economy remains resilient, supported by low unemployment and strong population growth,” he said.

He noted however that “higher interest rates are resulting in slowing growth and consumer spending, with pressure on some households and businesses”.

The bank said new migrants had opened most of the 150,000 new retail transaction accounts it had during the quarter, while its business banking unit had opened 36,000 new transaction accounts.

Despite productivity initiatives – which have included job cuts – expenses rose 3 per cent during the quarter ending September 30, due to wage inflation and higher amortisation charges.

CBA’s $2.5bn cash profit for the first quarter of 2024 is slightly higher than the $2.4bn cash profit in the last quarter of 2023, and is on track to meet Visible Alpha forward estimates of a $4.8bn cash profit in the first half of 2024.

The update follows a record year of profits for the big four banks — also including Westpac, NAB and ANZ — who amassed $32.5bn in profit during the 2023 fiscal year, thanks to higher interest rates.

CBA’s financial calendar ends in June, before its three smaller peers, whose yearly accounts close at the end of September.