- Q3 interest income up 10% on a year ago but down 2% since Dec
- Home and business lending volumes grow
- Q3 home loan arrears low, but tick higher
May 9 (Reuters) – Commonwealth Bank of Australia (CBA.AX), the country’s biggest home loan provider, said it would stop offering cash payments to lure new borrowers as it blamed ferocious competition for a decline in interest-based profit in the March quarter.
Total unaudited quarterly net profit jumped 10% versus a year ago to A$2.6 billion, but the bank said after rising interest rates boosted earnings in the December half, its net interest income had since shrunk.
CBA said it would quit offering cash handouts to lure new borrowers from July, citing “customer, broker and lender feedback that in the current economic environment customers are focused on value, simplicity and certainty”.
The decision makes CBA the first of Australia’s so-called Big Four lenders – which include ANZ Banking Group Ltd (ANZ.AX), National Australia Bank Ltd (NAB.AX) and Westpac Banking Corp (WBC.AX) – to stop paying homeowners for their business, and shows the limit of its patience for the margin-sapping measure.
CBA dominates Australia’s A$2 trillion ($1.4 trillion)mortgage industry with more than a quarter of all loans, by dollar value, making it the prime beneficiary of surging house prices from the start of the COVID-19 pandemic to early 2022.
But a year of rate hikes since then to slow inflation has prompted borrowers to seek cheaper loans, sparking a frenzy of cash offers from lenders prepared to sacrifice profit for market share.
“The other big banks could very well fold on their cashbacks deals in coming months, but if they’re looking for growth, they’ve just been handed a reason to keep these deals on the table,” said Sally Tindall, research director at financial comparison website RateCity.com.au.
A spokesperson for No. 3 mortgage provider NAB confirmed the bank offered up to A$2,000 for new customers. In a May 4 earnings call, CEO Ross McEwan said cash handouts were “part of the market at the moment (but) have been coming down over last six to 12 months, which is probably a good thing”.
ANZ and Westpac, which also reported narrowing interest margins in earnings updates this month, were not immediately available for comment.
CBA shares were flat by midsession, against a 0.3% decline in the broader market (.AXJO) and in line with other bank shares, as analysts noted the company’s downbeat trading update was similar to those of its rivals.
The bank’s third-quarter update amounted to “a soft result relative to market expectations, although not surprising given the context of recent peer results”, analysts at Citigroup said in a research note.
CBA, like the other banks, reported persistently low levels of late mortgage repayments, citing the country’s lowest unemployment rate in several decades, but it said arrears may still rise as borrowers face higher living costs.
“Many of our customers are feeling the strain of higher interest rates and the rising cost of living,” the bank said.
CBA also joined its rivals in pointing to its operations outside mortgages, and said it grew business loans by 1.3 times the rate of the total business lending market during the quarter. It added that its business banking unit now delivered about 40% of profit.
($1 = 1.4743 Australian dollars)
Reporting by Sameer Manekar in Bengaluru; Editing by Shinjini Ganguli