CBA boss defends big bank profits, says customer hardship still low
Commonwealth Bank chief executive Matt Comyn has defended the profits banks are making at a time when many households face a financial squeeze, signalling the bank will use its capital to support vulnerable customers in the coming downturn.
Comyn and Woolworths CEO Brad Banducci acknowledged on Tuesday that the cost of living pressure on households, which has sparked increased political scrutiny of some big businesses as they record strong profit results.
Comyn made the remarks shortly before the Reserve Bank raised interest rates to 3.6 per cent, a move that is likely to further widen CBA’s lending margins, after it notched up a record $5.15 billion first-half profit last month.
Speaking at The Australian Financial Review’s businesses summit, Comyn sought to put the bank’s record profits in context by saying that business trading conditions were still strong and customer stress was low.
“We’ve got very buoyant trading conditions, the economy’s performing extremely well. If the banks aren’t profitable now, that’d be a huge problem,” Comyn said.
Comyn said the number of hardship inquiries CBA was receiving was 20 to 25 per cent lower than pre-COVID levels. However, he also sought to illustrate how the bank was preparing to use its capital to help struggling customers.
As an example, Comyn said that for a customer with a $500,000 mortgage, CBA typically set aside about $15,000 of shareholder capital, mostly for unexpected losses. Comyn said if the same customer had to move to interest-only payments for a year because they were struggling, the bank would need to set aside another $4000 in equity capital.
“If that customer can’t make their repayments within 90 days, technically what we’d call in default, effectively that means the capital goes up by seven times. So that $15,000 becomes $100,000,” Comyn said.
“You can see there’s a huge incentive to both support customers and to get customers through, and also a huge cost if we go into more difficult times.”
When asked if he expected to face growing heat from politicians and the community as an emotional reaction to rising rates, Comyn replied: “We do, and we do in so far as is it’s going to be a period of lower economic growth.”
He acknowledged the mounting pressure on households, saying his experience from speaking with people suggested “the cost of everything, including banking, is going to be on people’s minds this year”.
Woolworths chief Banducci also highlighted the cost pressures on households, saying many consumers were doing more online shopping because it allowed them to shop to a budget and see specials.
“Everyone is experiencing inflation and looking for value. Some sectors of Australia are experiencing cost of living pressure,” Banducci said at the same event.
The chief executive of mining giant BHP, Mike Henry, was also asked about calls from some quarters for higher taxes on resources companies benefiting from booming export prices.
‘If the banks aren’t profitable now, that’d be a huge problem.’
Matt Comyn, CBA chief executive
He replied by saying export stalwarts such as coal and iron ore were likely to wane over the long term, as the world cut carbon emissions and Chinese demand for iron ore peaked. He pushed back against tax changes that would act to deter foreign capital from investing in Australia.
“There’s choices to be made now that are going to determine whether we are able to offset the waning … stalwarts of the export economy currently, and replace them with other commodities possibly, also other service industries that we will be able to export,” Henry said.
He said Australia had high personal tax rates and a high company tax rate, and he stressed the importance of being internationally competitive.
“If we do things that further disincentivise capital coming to this country because we see it as being a short-term opportunity, I’m highly confident that’s not going to serve the national interest longer term,” he said.
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