CBA ramps up business lending to take on NAB
At the same time, it will continue to be cautious on companies operating in aviation, tourism, accommodation and commercial real estate.
“We saw quite sluggish business investment even pre-COVID, which is why we want to play a bigger role in business banking and making sure we are allocating capital to areas of the economy where we think we can drive the most product improvements to the Australian economic outlook,” Mr Comyn said.
But it is important not to underestimate the bumpy and uneven ride ahead, he said, despite global growth forecasts of 5 per cent.
Getting unemployment below 6 per cent will be critical and relies on businesses dialing up investment for future growth, along with supportive policy in the next federal budget.
“We currently think the economy is on a trajectory for recovery,” he said. “Our economics team would be slightly more optimistic than the RBA’s forecast, but when you look at our balance sheet settings and level of provisioning, clearly that is more cautious – and that is deliberate.”
The push into business lending means CBA, which has historically fought Westpac for dominance in mortgages, will take on Ross McEwan’s Melbourne-based NAB, long known as Australia’s leading business bank.
The establishment of a ‘Major Client Group’ within CBA mirrors an identically named division within NAB under Don Argus in the 1990s.
After a business banker hiring blitz, CBA said it had increased business lending by $4 billion over the first-half, while its institutional desk provided $159 billion of liquidity to corporates.
This helped CBA to a cash profit for the six months to December 31 of $3.9 billion which was down 10.8 per cent given higher loan loss provisions that reflect a cautious view given the ongoing uncertainties of the health crisis.
CBA said its business loan book of $127 billion represented a higher market share of 17.3 per cent, up from 16.7 per cent and closing the gap on NAB’s 21.5 per cent share based on APRA figures.
After focusing on repairing CBA’s battered reputation after its money-laundering scandal and the Hayne royal commission, Mr Comyn said he had now decided to set a “more ambitious agenda for the future”, creating four new “pillars” to guide its strategic thinking.
Building the leading business bank is the first pillar; the others are improving products and services; creating better digital experiences; and reducing operating costs to create a simpler bank.
With regulators closely watching bank lending standards to prevent dangerous asset bubbles from inflating, Mr Comyn pledged loan growth would not come at the expense of margins or excessive risk.
“If you look at lending standards, I have no concerns from our perspective,” he said.
Andrew Martin, a portfolio manager at Alphinty Investment Management, which manages around $9 billion for investors, said it would take some time to measure success in business banking, noting any instances of corners being cut would first emerge in the margin.
“It’s always harder than it looks and takes a long time,” he said. “We’ve seen banks go headlong into some areas and it sometimes goes poorly.
“As long as they do it in a way that doesn’t cost from a margin or quality perspective, that would be a good thing.”
Frozen loans down 80pc
The strength of Australia’s economic recovery was laid bare by CBA’s latest figures on the number and value of frozen home loan repayments, which fell more than 80 per cent from the mid-year peak in 2020.
There are 25,000 loans, worth $9 billion, still on repayment holidays, down from 145,000 loans worth $51 billion at June 30.
Frozen SME loans fell even faster, to just 2,000 loans worth $300 million, down from 67,000 loans worth $15.7 billion over the same period. Ninety-six per cent of the business loans exiting deferrals returned to pre-COVID repayment levels, while 2 per cent of borrowers were receiving further assistance and 2 per cent of deferred loans were now impaired.
“We will continue to work with customers who are still in deferral, and we do anticipate – even though the numbers are getting much smaller – that will require ongoing assistance, and we are seeing that in areas most impacted by the pandemic at this stage,” Mr Comyn said.
As the government formulates its next budget, Mr Comyn said he was confident policies would stimulate employment, and it was critical to the health of the banks and economy that unemployment goes to 6 per cent or below over the course of the calendar year.
The “resilience and substitutability” of the Australian economy has been on display with many retailers posting strong results.
Mr Comyn pointed to the resurgence in interest in equity trading, as stock prices rocket ahead, and saw big gains at CommSec, where new trading accounts were up 130 per cent, active accounts were up 83 per cent and there was a 150 per cent increase in contract note volumes.
Reserve Bank governor Philip Lowe said last week that regulators have a close eye on lending standards, given the risk that customers will seek to chase rising asset prices, while the Reserve Bank of New Zealand this week imposed new loan-to-value ratio (LVR) limits on property lending.
Morgan Stanley analyst Richard Wiles said new macro-prudential measures from APRA are a risk to his positive view on Australia banks “however, we think there would need to be a material increase in Australian house prices, loan growth and higher LVR lending from current levels for this to occur in 2021.”
Mr Comyn said lending standards are “an area we and regulators will watch closely, but I am not concerned at all about any degradation.” The last housing boom in 2015 was driven by investors, but he said this time around growth is being driven by owner-occupiers.
CBA chief financial officer Alan Docherty said the challenges for banks include uncertainty about the pace of the COVID-19 recovery, along with pressures from low official rates, which are expected to take 0.07 per cent off CBA’s interest margin this year.
“(However) in comparison to most other advanced economies around the world, Australia has so far delivered globally leading outcomes, a very strong rebound in economic activity, and a strongly capitalised banking system that supports the continued flow of credit to the economy,” he said.
“We can’t be complacent. But we should have confidence in our ability to collectively manage through this uncertain period.”