Commonwealth Bank and NAB go head-to-head in business lending

Commonwealth Bank chief executive Matt Comyn has declared his ambition to topple the nation’s leading business bank, NAB, from its perch.

CBA chief executive Matt Comyn. Picture: Adam Yip

Commonwealth Bank chief executive Matt Comyn has formally declared his ambition to topple National Australia Bank as the nation’s leading business bank.

At the bank’s half-year result on Wednesday, Mr Comyn said CBA would help build the nation’s economy by extending its dominance in home-lending to business banking.

CBA got the volume part of the equation right in the December half, growing its business lending book by 7.4 per cent — equal to three times the average of the banking system. Business deposits expanded by 19.6 per cent, or 1.7 times the system.

While pleased with the performance, Mr Comyn said true leadership would be measured over the medium to longer-term across a broader range of benchmarks than volume. Pricing and the net interest margin were also important, as was the quality of the service offering.

“We do see it as a relative area of growth and that (leadership) is a reasonable aspiration,” he told The Australian.

“If you look at the strategic pillars that we’ve covered in our strategy, one of them is leadership in Australia’s economic recovery and transition, and we think it’s really important as part of that to be allocating capital to the sectors of the economy.

“You know business investment is going to be important. We’ve got the largest number of business customers with strong deposit gathering franchise payments.”

NAB’s business bank is a resilient franchise, remaining top of the pile despite a series of misadventures by the group over the past few decades.

In openly targeting the market leader, Mr Comyn has thrown down the gauntlet to former CBA colleague Ross McEwan.

Mr McEwan left his job as head of CBA’s retail bank to become chief executive of Royal Bank of Scotland.

Mr Comyn succeeded him, and then won a two-horse race with Mr McEwan to take over from Ian Narev as CBA chief executive in early 2018.

NAB announced in July 2019 that it had recruited Mr McEwan as its new chief executive.

The business banking market is sliced and diced in various ways, with CBA claiming a market share of 17.3 per cent last December based on Australian Prudential Regulation Authority figures, up from 16.8 per cent in June and 16.7 per cent in December 2019.

Total loans to NAB’s heartland segment of small and medium-sized businesses is $320bn compared to $1.8 trillion in home loans.

NAB’s percentage market share is in the low-20s.

While higher risk, business lending is attractive because it is also higher margin, with CBA reporting a margin of 3.02 per cent in the December half, down slightly from 3.04 per cent in the preceding half.

Cash profit for the business bank, which has been led by South African banker Mike Vacy-Lyle since February 2020, was $1.34bn, up 24 per cent on the preceding half but 4 per cent down compared to a year ago.

Mr Comyn confirmed that he would measure leadership in a number of ways, not just by market share.

CBA, as previously announced, will back its bid for the number one position by doubling the amount of business bankers in its branches by June this year.

It will engage with customers in a physical setting but also invest in digital channels, as part of a rise in annual investment across the group from $1.4bn to $1.7bn.

The intention is to capture the growth opportunity from automation, which is associated with better customer satisfaction outcomes.

NAB, for its part, is also investing heavily in its business and private banking unit, which Mr McEwan often described as one of the nation’s top two banking franchises, along with the CBA retail bank he once ran.

The unit reported a flat interim profit of $1.38bn in 2020, and through the course of the year added 550 business bankers.

This was before the arrival of Canadian banker Andrew Irvine last September to lead the bank’s most important division.

Mr McEwan said at the full-year result last November that NAB was also investing in its business bank’s processing capabilities.

“That’s where we’re going to spend a lot of money over the next couple of years, because margins will come out of this business and we want to hold the profitability,” he said.