Commonwealth Bank of Australia is bracing for a mild economic downturn as higher interest rates constrain growth and demand.
And the bank’s boss has warned the effects of the Reserve Bank of Australia’s inflation fight is being felt disproportionately by younger and lower income earners on both the spending and saving fronts.
After unveiling a 6 per cent fall in full-year net profit to $9.39 billion, CBA chief executive Matt Comyn tipped economic growth to fall below 1.5 per cent this year. “Inflation is falling, but it still remains too high,” Mr Comyn said in an analyst’s briefing.
“Our base case remains a soft landing, and we are expecting these pressures to ease as inflation and interest rates start coming down later this year.
“We realise that many people are needing to take on second jobs or work additional hours to supplement their incomes.
“We can see customers using savings buffers to cope with higher prices and mortgage rates, and we recognise our younger customers have been impacted most heavily. “
CBA reported a 2 per cent fall in its cash profit to $9.85b in the year to June 30, blaming this on its net interest margin falling 8 basis points to 1.99 per cent.
As banks grapple with rates staying high for longer than they hoped, CBA said blamed its lower margin for 2023-24 on increased competition, reduced deposit earnings and customers switching to higher yielding deposits.
The bank was also hit by higher whole funding costs, partially offset by higher earnings on capital hedges.
The proportion of home loans in arrears rose for more than 90 days rose 13 basis points to 0.65 per cent of this loan book, while loans 30 days behind surged 59 basis points to 3.56 per cent.
The proportion of home loans that have been in arrears for more than 90 days increased 12 basis points to 0.64 per cent.
It has continued the difficulties outlined with its interim result in February, when the Mr Comyn warned the bank was grappling with lower margins that it historically expected.
He warned on Wednesday when the bank was continuing to face a “lot of active competition” — particularly at the upper end of the corporate loan market.
Despite this being considered a major part of the CBA market, Mr Comyn praised his top-end business banking team after “they’ve missed or let go probably $7 billion of deals at the upper end, mostly for pricing, occasionally for credit”.
“The team’s done a good job of being very disciplined there,” he said. “We feel like there’s certainly competitive intensity there, but we’ve been able to operate pretty effectively from from our perspective
CBA reported a slide in the quality of corporate loans, with the ratio of investment grade dropping to 64.75 per cent to 67.72 per cent in the six months to December 30.
The total value of troublesome and impaired loans rose to $1.84b to $8.73b in a loan book totalling $950b.
Impaired and trouble consumer loans jumped by almost $500m to $2.49b, something the bank blamed on higher interest rates and cost of living pressures.
Commercial property loans copping this problem jumped $646m to $1.23b and troubled wholesale trade loans by $383m to $773m.
The wholesale trade surge was blamed on one troubled client, while the commercial property surged was put down to three arrangements.
CBA chief financial officer Alan Docherty said he was “very comfortable” with the level of the bank’s security on its big commercial property problem loans.