CBA home loan arrears low in third quarter, but pressure on interest margins remains

CBA reported third-quarter cash profit of $2.4 billion, which was flat with last year’s quarterly average but above analysts’ expectations. It was supported by continued low levels of impaired loans and the decision not to chase competitors on pricing.

Compared to the March quarter of last year, the CBA increased housing loans by 8.5%, household deposits by 13.5%, business loans by 12.6% and business deposits by 13.5%.

Nonetheless, total operating income fell 1% to $12.2 billion and net interest income fell 2%.

Margin pressures will ease

Mr Comyn said competition remained intense, the revenue outcome reflected the turnaround in the housing cycle and the CBA’s decisions to cut lending to higher loan-to-value or debt-to-income ratios. But he added that the contraction was “mainly price driven”.

Banks also made lower spreads on fixed-rate loans, which became popular when the pandemic hit.

Last week, ANZ and National Australia Bank released interim results showing a compression in net interest margins in the mortgage market in the first half of the year. Both banks strayed from cost targets.

The CBA said that for its third quarter, volume growth was offset by a lower net interest margin, which continued to be influenced by factors it discussed in the first half result in February, including “the compression of margins on real estate loans due to the increase in swap rates, the effects of portfolio composition and price competition”.

Mr Comyn said he expected higher interest rates to ease margin pressures later this year.

“Obviously that starts to turn around when we enter a cycle of rising rates, which we certainly are in, and we expect that to provide a tailwind to net interest margins, in the first half of particular of our fiscal year 2023,” he said.

Spending fell 2%, which the ABC said was due to more staff taking annual leave.

Credit quality remains strong. The number of home loans over 90 days past due fell one basis point to 0.51%, but delinquent credit cards rose 10 basis points to 0.59% and arrears on personal loans rose four basis points to 1.01%.

Yet the total bad assets of $6.6 billion still represent only 0.51% of loans.

“Home loan arrears remained low, impacted by the quality of origination, low interest rates, a strong housing market and growing balances,” the CBA said. “Credit card and personal loan arrears began to normalize during the quarter in line with seasonal trends.”

Looking ahead, Mr Comyn said the bank was “well placed to support business investment to build Australia’s future economy” and that the CBA had achieved record levels of market share in business lending.

“Overall, companies are not particularly rate sensitive. They are aware that this is a very low rate environment and they cannot continue,” he said.

Growth in business credit would be supported by higher prices and continued investment in production capacity, including logistics and outsourcing of manufacturing.

“Demand is still strong and the pipelines, from our perspective, look solid through June 30,” Comyn said.

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