Commonwealth Bank delivered a bumper $5.13bn half-year cash profit on Wednesday, even as a rising number of indebted Australian households grapple with steeply increasing living costs.
Here are four things we learned about Australia’s biggest bank, its customers and the broader economy from its latest financials.
Financial disparity
CBA’s half-year results show how cost-of-living pressures are felt unevenly in Australia.
Its accounts show that personal loan arrears have moved higher in recent months as more people have fallen behind on repayments by at least 30 days.
This has been influenced by “customers being more susceptible to cost-of-living pressures, particularly young and low-income customers”, according to the bank.
Personal loans, which are sometimes taken out to consolidate debt, require much higher repayment rates than a typical home loan, and are often used by people already under financial pressure.
Mortgage arrears also ticked higher, but only modestly, after some under-pressure homeowners were able to direct last year’s stage-three tax cuts to staying solvent.
“Consumer arrears remained broadly stable, supported by tax refunds and changes to income tax rates and thresholds,” CBA said.
The question now turns to whether there will be longer-term relief for indebted households through a rate-cutting cycle and moderating living costs, or whether repayment rates will remain elevated.
Those homeowners doing it the toughest tend to be located in Victoria, where falling prices have eroded their equity – which is a particular problem for newer, and often younger, mortgage holders.
Interest rates
There are widespread expectations the Reserve Bank of Australia will cut interest rates by 25 basis points next week, given Australia’s underlying inflation rate has fallen to a three-year low.
But there is an open question as to whether that will spark a series of rate cuts or whether inflation will edge higher again, as it has in the US, denting the chances of future rate relief.
The CBA chief executive, Matt Comyn, said he expected an “easing cycle” to start this year, referring to expectations of a series of rate cuts.
“This should provide some relief to many households and improve business confidence,” Comyn said.
“The strong labour market and level of ongoing public sector infrastructure spend also provide cause for optimism on the domestic economic outlook.”
CBA’s economics team believes the RBA “does not need to rush to normalise the cash rate”, given the strength in the jobs market. It has a “base case” that the RBA will cut the cash rate by 25 basis points in each quarter of 2025.
Cozzie livs and scams
On Wednesday, CBA published a letter to shareholders accompanying its financials promoting how it was “supporting customers” in need and “protecting communities” from scams.
CBA’s management understands it is susceptible to criticism on both of these issues, given its bumper cash profit and expanding margins have been delivered shortly before a cost-of-living election that has included sharp comments about corporate profits.
The regulator found last year that vulnerable customers often were not well supported by Australia’s biggest lenders, a finding backed up by on-the-ground experience of consumer groups helping distressed customers. The sector report did not distinguish between the banks, and made no specific findings about CBA.
Australia’s biggest bank said in its shareholder letter it had now “made it easier to apply for help”.
The bank sector won a major reprieve from the federal government last year when Labor opted against following the advice of consumer advocates who had advocated for a UK-style mandatory bank reimbursement scheme for scam victims.
The major banks broadly support the government’s alternative plan, and are now heavily advertising their various scam prevention measures, many of which consumer advocates say should have been implemented years ago before scam losses spiked above $3bn a year.
Market darling
CBA’s share price run has been described as “gravity-defying” by Cameron McCormack, a senior portfolio manager at VanEck, after rising more than 40% in the past 12 months.
Analysts have long warned that its valuation is stretched, according to a comparison of bank stocks around the world, but that hasn’t stopped investors adding more CBA shares to their portfolios.
On Tuesday, Australia’s largest bank declared an interim dividend of $2.25 a share – up from $2.15 last year – in another reward for shareholders.
While some of its customers are under considerable financial pressure, CBA is enjoying the fruits of its large mortgage portfolio.
It has actually decreased expenses set aside for impairments, according to its half-year accounts, which it attributed to robust house prices around the country. Even in cases when a customer can no longer meet their repayments, the bank could likely retrieve the value of the loan when the home sells.
CBA said its home-lending portfolio remained “well-secured” with the majority of its customers ahead on repayments.
Analysts note that it would probably require a sizeable jump in unemployment, or plunge in the office or housing markets, to trigger a shock to Australia’s banking sector.
In the meantime, the bank’s chief gauge of profitability, net interest margins, is rising, even as a cost-of-living crisis plays out around it.
