Interest-only mortgages accounted for 38 per cent of CBA’s new business lending in the second half of 2017, but the bank says that it will be 'comfortably' below APRA’s 30 per cent benchmark by September.
According to the results for the six months ending June 2017, there was $41 billion of new business written through CBA’s retail banking services (RBS).
Owner-occupiers accounted for 65 per cent of RBS new business in the second half of the financial year, while investor loans held firm at 34 per cent — despite increasing pressure from the regulators to curb investor lending.
In March of this year, the Australian Prudential Regulation Authority (APRA) said that it expected banks to limit new interest-only loans to 30 per cent of its lending and “place strict internal limits on the volume of interest-only lending at loan-to-value ratios (LVRs) above 80 per cent”.
However, the proportion of new RBS interest-only (IO) loans being written for the half year ending June 2017 held at 38 per cent, the same level as it was in the prior comparative period.
Looking at the Australian home loan portfolio, IO loans (excluding lines of credit) accounted for 39 per cent of new business, 1 per cent down on the prior comparative period.
However, the bank emphasised that the figures are for the average for the half, adding that the level of IO lending has “reduced substantially over the last quarter”.
According to the bank, the drop is a result of “pricing as well as other tightening”, which have resulted in the bank seeing new IO lending “below the 30 per cent [threshold] this month and will be comfortably below the 30 per cent at the end of September, as APRA has requested”.
The annual results also show that new Lender’s Mortgage Insurance was up by 1 per cent to 14 per cent in the RBS portfolio (or by 2 per cent to 16 per cent in the Australian portfolio) for the six months ending June 2017.
Low deposit premiums and low doc loans were also up on the prior comparative period for both portfolios.
Over the year, CBA provided $197 billion in new lending to customers, including providing 330,000 home loans.
Customer deposits made up 67 per cent of the group’s total funding.
Banking income grew by 4.3 per cent due to volume growth in home lending, business lending and deposits.
CBA posted a cash net profit after tax (NPAT) of $9.881 billion for the 2017 financial year, up by 4.6 per cent on the previous financial year.
This is up 9 cents on the 2016 financial year and means a dividend payout ratio of 75 per cent of cash NPAT.
However, the group’s net interest margin fell 3 basis points to 2.11 per cent due to higher wholesale funding costs and increased competition in home and business lending.
On a cash earnings basis, its return on equity stood at 16 per cent, down from 16.5 per cent a year earlier.
Cash earnings were up to $5.75 per share from $5.55 in the 2016 financial year.