CBA targets strong growth in housing mortgage book of up to 8pc

Commonwealth Bank retail boss Angus Sullivan says the bank would have “no undue constraints” in growing its mortgage book by 7-8 per cent in 2021.

CBA’s head of retail banking services Angus Sullivan. Picture: Chris Pavlich

Commonwealth Bank would experience “no undue constraints” in growing its sector-leading mortgage book by 7-8 per cent in the current financial year, CBA’s head of retail banking services Angus Sullivan has said.

If the home-loan market grew by 5-6 per cent in 2021 and CBA continued to expand its book by 1.5 times the system, Mr Sullivan said it would be “no mean feat” to grow at such a healthy clip.

“It’s a very competitive marketplace but we’re very comfortable with the composition of our business,” he told The Australian.

“We would have no undue ­constraints.”

On Wednesday, CBA unveiled a 10.8 per cent decline in cash profit to $3.89bn for the December half-year, as it raised impairments compared to a year ago and expressed cautious optimism about the outlook.

The retail bank contributed a cash profit of $2.2bn, a decline of 3 per cent on the previous corresponding period.

The momentum in the home-loan business was highlighted by $3bn of growth in mortgage balances in December alone, one of the best months in the bank’s history.

Mr Sullivan echoed chief executive Matt Comyn’s cautiously optimistic outlook, saying there was still some uncertainty about the next three to four months as support measures were withdrawn and the economy began to stand on its own feet.

However, record-low interest rates continued to support the housing market, as did the ability of customers to fix their home-loan rate for four years at 1.99 per cent. This had resulted in a spike in fixed-rate mortgages, which now accounted for 40-45 per cent of new flows compared to 18-20 per cent about 18 months ago.

Mr Sullivan said the recovery in the housing market, with CBA forecasting an 8 per cent increase in prices this year, was “markedly different” to one of the previous spikes in 2014 which led to the ­introduction of macroprudential measures by the Australian Prudential Regulation Authority.

The larger, more recent increases, he said, were outside the usual trouble spots of Sydney and Melbourne. The pandemic had also led to lower demand due to a collapse in immigration and the sharply reduced inflow of inter­national students.

“We’re preparing for the full spectrum of outcomes,” Mr Sullivan said.

Meanwhile, investors warmed to a revenue recovery from CBA and applauded its balance-sheet strength, even though capital management initiatives are considered unlikely in the short term.

The stock lifted 93c, or 1.1 per cent, to $87.05 on Thursday, in an overall flat market.

UBS highlighted a better-than-expected 4 per cent lift in revenue in the three months to December.

“The revenue recovery appears to be broad-based, with stronger lending volumes and a bounce in the net interest margin driving a 2.4 per cent recovery in net interest income in the second quarter,” analyst Jon Mott said.

“Better trading income, a rebound in merchant fees post-COVID and stronger CommSec revenue drove a 9 per cent rise in second-quarter fee income.”

Mr Mott said this highlighted the strong leverage banks had to an economic recovery.

While cautious about assuming a longer-term trend, Mr Mott said the revenue environment was better than previously imagined.

On the prospect for capital management initiatives due to its $10bn surplus over regulatory requirements, he said CBA cited the need for greater certainty about the domestic economy, ongoing improvement in credit quality and risk factors, and guidance from the prudential regulator.

Mr Mott said he expected a $10bn buyback, up from $8bn, with the 2021 annual result. And while upgrading his 2021 earnings per share forecast by 2 per cent, then 6 per cent and 10 per cent in the following two years, UBS said this was already factored into CBA’s share price.

The bank is valued by the market at 2.2 times its book value.

Citi analyst Brendan Sproules said the half-year result was about 4 per cent ahead of consensus estimates, with revenue about 1.5 per cent more than expectations.

Mr Sproules said higher costs, inflated by a further customer remediation top-up, took the gloss off much lower bad debts compared to the preceding half-year.

Morgan Stanley analyst Richard Wiles said the result featured solid operating trends, sound credit quality and stronger capital.

Despite this, the investment bank kept its underweight recommendation. “We think CBA’s outperforming franchise, low-risk profile and capital management prospects are reflected in trading multiples,” Mr Wiles said.