Commonwealth Bank business lending arm reports jump in profits

Commonwealth Bank has reported the strongest ever earnings contribution from its business bank, after the division saw a 31 per cent jump in profits.

Commonwealth Bank business banking group executive Mike Vacy-Lyle. Picture: Nikki Short

Commonwealth Bank has reported the strongest ever earnings contribution from its business bank, after the division saw a 31 per cent jump in profits ahead of an expected slowdown in lending.

CBA has been attempting to gain on the market share of rival National Australia Bank, the ­nation’s largest lender to business, which is set to report quarterly earnings on Thursday.

CBA’s record group first-half profit of $5.15bn was buoyed by a boom in the bank’s business ­lending – which grew at faster than industry rates – while the bank’s home lending was in line with the sector’s growth.

The retail bank delivered $2.73bn in profit over the six months to December 31, in a 17 per cent increase from the same period a year earlier.

The business banking arm managed a $1.97bn profit, and ­accounted for almost 40 per cent of CBA’s total profits, the biggest proportion ever thrown off by the business bank, which is typically overshadowed by CBA’s home lending division.

CBA chief executive Matt Comyn said the strong result ­reflected the surge in business lending, while failures and loan losses remained muted.

“The credit environment remains very benign, across retail and businesses and both in terms of what we can see,” he said.

Business lending outstripped system growth, across lending and deposits.

Clime Asset Management chief investment officer Will ­Riggall said the business bank’s ­result showed the success of its technology transformation, allowing CBA to grow customer numbers at little cost.

“To my mind, it looks relatively sustainable,” Mr ­Riggall said of the divisional performance.

“You’ve got to utilise their competitive advantage and that’s just what they’re doing in business banking.”

The business bank, led by group executive Mike Vacy-Lyle, improved its net interest margin, climbing from 2.98 per cent in June to 3.63 per cent by December. The 65-basis-point expansion allowed the business bank to supercharge returns, but CBA noted that it took a one-basis-point haircut on its margin “due to the impact of competition”.

The operating expenses to total income ratio slipped from 37.7 per cent in June to just 30.3 per cent in December.

The business bank unveiled its new PowerBoard product in December, the first time CBA offered a complete finance dashboard to its business customers.

But the business bank’s results also signalled trouble ahead, with CBA dialling up its provisions by $231m to $263m in preparation for loan losses in the year ahead.

CBA said the higher provision costs reflected ongoing input cost pressures, supply chain disruptions and the spectre of rising interest rates.

Mr Comyn said CBA was thinking “much more about the future period”. He said: “Probably on the balance of the total provisions, we think there will be more stress in the non retail.

“At this point, we’re not per se concerned about the credit quality in the total outlook.

“We think there will be more stress in the non-retail as the impact on household consumption over the course of the year will ­inevitably flow through to non-­retail or discretionary sectors.”

Originally published as Commonwealth Bank business lending arm reports jump in profits