Commonwealth Bank of Australia chief executive Matt Comyn says a successful and widely distributed vaccine will be a game-changer for the economy and reboot the bank’s results, which will benefit from the flow-on effects of travel and population growth.
However, Mr Comyn cautioned that the first six months of next year would be the “barometer” for strength in the economic recovery. “There’s been so much supported stimulus this calendar year, which naturally needs to taper,” he said.
“I think some of the underlying impact from the lockdowns, we probably can’t quite see in the economic spend data at the moment,” he said. “I don’t think we’ll get a really good read on that until probably the April/June quarter next year.”
CBA reported on Wednesday its cash profit had fallen by 16 per cent to $1.8 billion over the past 12 months and Mr Comyn said Australia’s economic outlook would “heavily influence” the performance of the country’s largest bank.
Pharmaceutical giant Pfizer announced major advances in its coronavirus vaccine on Tuesday and resulted in COVID-hit stocks rebounding. CBA’s share price jumped by 3 per cent.
Mr Comyn said a successful vaccine could enable greater domestic and international travel which could stimulate the economy and improve the bank’s performance.
“Overall, CBA is leveraged to underlying performance of Australian economy,” Mr Comyn said. “The vaccine is an important enabler and that’s a very significant piece of news.”
“Definitely the efficacy rates reported in the last couple of days of 90 per cent, I think that would exceed just about anyone’s expectations.”
CBA reported its loan book had grown at twice the pace of the broader market, with home lending up $5.6 billion and business lending up $1.4 billion between June and September this year.
The bulk of its customers had started coming off deferred loan plans, with 73 per cent of mortgage owners and 95 per cent of business borrowers now making full repayments. This fares better than Westpac which reported 66 per cent of mortgage owners and 91 per cent had returned to payments last week.
Mr Comyn said the economy had responded better than expected to the health crisis, but he would retain a cautious approach as CBA put aside an additional $300 million for further credit impairments.
Jefferies senior banking analyst Brian Johnson said the banks had not yet seen the worst of the COVID-19 crisis. “The real message is, while everyone is really excited thinking we’re through COVID, the reality is we won’t know how bad the loan loss is until June next year.”
The real message is, while everyone is really excited thinking we’re through COVID, the reality is we won’t know how bad the loan loss is until June next year.Jefferies analyst Brian Johnson
CBA was the first major bank to reduce rates on fixed term mortgage and business loans last week, following the Reserve Bank’s historic decision to cut the cash rate to 0.1 per cent.
Mr Johnson said while fixed-term loans were less risky for lenders, they also provided lower returns. “Although it feels safer, it makes the NIM [net interest margin] go down,” he said. “So you can choose whether you want future systemic loan loss or NIM contraction.”
Net interest margins are a key measure of profitability, comparing the banks’ funding costs with what they charge for loans.
Mr Comyn said there was high “competitive intensity” within the market that was driving rates down, but this would put further pressure on bank margins.
“It’s obviously good news for customers,” he said. “The low interest rate environment puts a lot of pressure on financial institutions insofar as it compresses net interest margins, we’re clearly not immune to that.”
Evans and Partners director Matthew Wilson said CBA had won “some easy residential mortgage market share” due to the underperformance of its competitors. “That is now largely over,” he said. “The market will be more competitively bid and we expect some reversion as CBA protect their NIM.”
CBA shares were up 2.32 per cent to $74.08 in afternoon trading on Wednesday.
Source: Thanks smh.com