CBA profits up, brokers drive lending growth

The Commonwealth Bank of Australia (CBA) has reported a cash net profit after tax (NPAT) of $4.7 billion for the first half of the 2019 financial year (1H19), an increase of 1.7 per cent from 1H18.

The profit jump coincided with home lending growth of 4 per cent, driven by owner-occupied loan growth of 6.5 per cent in the 12 months to 31 December 2018.

However, much of the bank’s home loan growth was generated through the broker channel, which originated 45 per cent of CBA’s home loan flows, up 5 per cent from the previous corresponding period.

Speaking to investors following the release of the bank’s results, CBA CEO Matt Comyn acknowledged the contribution of the broker network to the bank’s home lending growth, noting that borrowers have sought assistance from the third-party channel amid tighter lending conditions.

“If you go back to the second half of last year, all of the major banks had struggled to grow at system,” Mr Comyn said. “The increased proportion of new loans to the broker channel has increased during that period.”

He continued: “At a macro level, 59 per cent of applications at a system level are going through the broker channel.

“I think over the past six months, that context has been conducive to brokers because there has been a lot of discussion and information out there about availability of credit.”

Mr Comyn conceded that home loan volumes were “flat” via CBA’s proprietary network, claiming that “higher performance” in the broker channel was also partly attributable to the bank’s increased participation in the broker channel.

However, despite acknowledging the contribution of the broker channel, Mr Comyn reiterated his support for changes to the broker remuneration model amid calls for a borrower-pays remuneration model by Commissioner Kenneth Hayne in the banking royal commission’s final report.

The broking industry has strongly opposed such changes, with industry leaders flagging the risks of a borrower-pays model to competition in the mortgage market.

However, despite reporting a rise in home lending volumes, CBA’s share of the home loan market dropped, falling from 24.6 per cent in 1H18 to 24.3 per cent in 1H19.

CBA’s overall mortgage portfolio increased by $14 billion, from $444 billion as of 31 December 2017 to $458 billion at the conclusion of 1H19.  

Commissioner Hayne ‘persuaded’ by Comyn

CBA’s HY19 results announcement follows the release of the banking royal commission’s final report, in which Commissioner Hayne noted that he was assured of CBA’s commitment to addressing compliance failings identified by the Australian Prudential Regulation Authority in its Prudential Inquiry.  

“I was persuaded that Mr Comyn, CEO of CBA, is well aware of the size and nature of the tasks that lie ahead of CBA,” Commissioner Hayne said.

“None of the other large banks have been confronted so directly with why each has had its own conduct and compliance issues.”

In his response to the commission’s final report, Mr Comyn claimed that the bank would be reviewing Commissioner Hayne’s recommendations and “addressing past failings”.

“We are working through the royal commission’s final report and the 76 recommendations,” Mr Comyn said.

“Commissioner Hayne has called out the clear need for change. The government has announced a comprehensive set of measures in response and we will work through the impact of these over the next few days.”

“We are addressing past failings, implementing important changes, and improving our processes to ensure we remain focused on what is best for our customers.”

[Related: Banks respond to RC recommendations]