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Home loan price war hits CBA’s margins

The big four bank has recorded a “considerably lower” net interest margin in the last quarter, despite gaining $10.1 billion in new home loans.

CBA released a first-quarter trading update for the three months to 30 September on Wednesday (17 November), revealing an unaudited cash net profit of around $2.2 billion, 20 per cent higher than the previous corresponding period.

Home lending had grown by $10.1 billion during the three months, a growth rate 7.6 per cent higher than what had transpired in the September quarter the year before.

Business lending on the other hand had grown by $3.1 billion, a pace 13 per cent higher year-on-year.

However, CBA noted its net interest margin was “considerably lower in the quarter”, noting home loan price competition, a wave of customers switching to fixed rate loans and impacts from a low interest environment.

The bank’s operating income of $6 billion had dipped by 1 per cent compared to the quarterly average in the second half of the 2021 year, after the divestment of Aussie Home Loans and lower retail banking and merchant fees were gained through COVID restrictions.

Net interest income was higher by 1 per cent, at $$4.7 billion, but it was offset by an 8 per cent reduction in non-interest income to $1.2 billion.

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Excluding the Aussie sale, CBA’s income stayed flat.

Compared to the prior corresponding period, operating income was up by 3 per cent.

At the same time, household deposits were up by $20.4 billion, a growth rate 12 per cent higher year-on-year.

While CBA chief executive Matt Comyn reported the bank has seen above-system volume growth in the September quarter as restrictions have eased, the group has maintained broadly unchanged credit provisions of $6.2 billion.

CBA had a loan impairment expense of $103 million in the September quarter, which equated to five basis points of average gross loans and acceptances.

“Following provision releases in 2H21, total credit provisions were broadly unchanged in the quarter at $6.2 billion and continue to reflect both sound portfolio credit quality and a cautious approach to provisioning as the economy recovers from the activity restrictions introduced to manage the health outcomes from COVID-19,” the trading update stated.

Home loan arrears were lower during the quarter, with CBA noting an impact from temporary loan repayment deferral arrangements for a small number of customers (around 1 per cent of the total portfolio).

However, as the NSW and Victorian economies reopen and spending picks up, the bank expects a modest uptick in arrears.

[Related: ANZ confirms fixed rate increase]

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