CBA won't be pushed into "value-destructive" mortgage deals

Although the big bank has lost mortgage market share, CEO Matt Comyn says it will continue its "disciplined and consistent approach"

CBA won't be pushed into "value-destructive" mortgage deals

Commonwealth Bank CEO Matt Comyn (pictured above) isn’t bothered about offering better deals to home loan borrowers in order to compete with ANZ and other major banks that are syphoning its market share.

During a quarterly earnings update, Comyn said the pricing strategies of rival banks were “value-destructive.”

“In banking, it’s very important to remember that margins are a higher determinant of [profitability], or more important than volume,” Comyn said in an interview with The Australian. “And we want to maintain that discipline and consistent approach to, of course, supporting our customers – but not aggressively competing in portions of the market where we don’t think the risk-adjusted return profile is commensurate with what our investors or owners would expect of us.

Comyn emphasised the need for a “consistent and disciplined approach” throughout the market cycle.

CBA has taken a step back from the highly competitive mortgage market, where banks are vying for a shrinking customer base while facing the challenge of refinancing cheap fixed-rate loans at higher rates. The bank had previously attracted some of these customers but withdrew its cashback offers for new customers in May. As a result, CBA is now under pressure to address the loss of market share.

During the quarter, CBA reported a decrease of $4.5 billion in home loan balances, while ongoing competition for deposits and customers switching to higher-yielding deposit products impacted the group's net interest margins, The Australian reported. However, CBA’s update stated that margins in the home lending unit had stabilised during the quarter.

Comyn suggested that other banks’ mortgage pricing strategies were destroying shareholder value.

“I think if you look across the peer results, you can see the impact of net interest margins reducing or weighing on shareholder expectations. The return profile is value-destructive,” he told The Australian.

He pointed out that ANZ's divisional net interest margin had experienced a substantial reduction.

Read next: CBA moves to cut jobs after massive full-year profit criticised

While CBA's shares rose after the earnings update, some analysts expressed differing views on the bank's performance. Citigroup analysts considered the result to be relatively in line, while Jefferies banking analyst Matt Wilson predicted that CBA's disciplined approach to volume and margin would eventually change.

Comyn also acknowledged that Australians are feeling the pressure due to increased interest rates, which have risen by 4.25 percentage points since May of the previous year. Comyn said that while some households remain well positioned, others are finding the higher costs of living challenging, The Australian reported.

Despite the challenges, CBA remains optimistic about the medium-term outlook, citing the resilience of the Australian economy supported by low unemployment and strong population growth. However, Comyn acknowledged that higher interest rates are impacting consumer spending and putting pressure on households and businesses.

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