CBA grows home lending, but margins squeezed

In its trading update, the bank reported home lending was up $6.9 billion (up 8.5 per cent) and business lending went up $3 billion (up by 12.6 per cent), which it said marked a “steady operating performance” and volume growth compared to the quarterly average of the first half of financial year 2022.

With the bank’s proprietary channels accounting for 60 per cent of all new fundings in the quarter (RBS, ex. Bankwest).

Despite the growth in home lending, it reported income from interest payments from customers fell over the March quarter (down 2 per cent), caused in part by “on-going lending competition” and funding costs putting pressure on margins.

The low cash rate environment saw net interest margins (NIMS) decline and drag on the big four bank’s performances, which could be tipped to change amid a rising cash rate.

As the bank moved to increase fixed-rate loans, in response to rising swap rates, the “softening impact” on new home lending volumes was expected, with fixed-rate loans as a proportion of new fundings declining from 47 per cent in 1H22 to 27 per cent in March 2022.

Home loan arrears remained low (0.51 per cent compared to 0.52 per cent the previous quarter), influenced by origination quality, low-interest rates, a sound property market and balance growth, while credit card and personal loan arrears began to normalise in the quarter in line with seasonal trends.

Domestic business lending grew by almost 13 per cent over the 12 months to March 2022, as household and business deposits went up $8.5 billion and $2.2 billion respectively, while operating expenses were 2 per cent lower.

As the group continues to adopt a cautious approach to managing potential risk, due to higher interest rates, inflationary pressures and supply chain disruptions total credit provisions amounted to $5.7 billion.

The report said “continued growth” and “sound credit quality” underpinned the latest quarterly performance, as well as economic conditions improving post-pandemic particularly in the business sector.

CBA’s chief executive Matt Comyn said through the bank’s execution of its strategic agenda, it will continue to “support business investment” to build Australia’s future economy.

“The March quarter underlined the disciplined execution of the group’s strategy, focused on our core banking franchises, which delivered continued volume growth, sound portfolio credit quality and ongoing support for our customers and communities,” Mr Comyn said.

[Related: All four major banks pass on rate rise to borrowers]