CBA boss stays bullish
THE chief executive of Australia’s biggest bank has declared his confidence in the strength of the nation’s economy as inflation rises and unemployment sits at a 50-year low.
“There is real strength in the underlying economy,” Commonwealth Bank chief executive Matt Comyn said after the bank posted a flat profit result for the three months to March. “We remain optimistic about the outlook.”
CBA recorded a $2.4bn profit in the third quarter, in line with the previous quarter, as loan growth and non-interest income offset industrywide margin pressures stemming from record-low interest rates.
CBA and its rivals last week increased interest rates on home loans after the Reserve Bank increased the official cash rate for the first time in 10 years, by 0.25 per cent.
The RBA hiked rates higher and earlier than the market had expected, also revealing a downwards revision to its unemployment rate forecasts, significant upwards revisions to its inflation forecasts and pointing to wage increases at larger firms. The unexpected move triggered a rash of predictions that rates may rise to between 2.5 and 3 per cent by mid next year.
However, Mr Comyn believes the Australian market does not require such a sledgehammer approach to moderate inflation and predicts a rate increase to 1.6 per cent.
“It will occur in a more orderly fashion than the market is pricing in. Inflation will reduce faster than the market is pricing in. The Australian economy is more responsive than many other markets,” Mr Comyn said.
It’s possible a more moderate approach would suit CBA. The bank would see an extra $320m per 25bp on deposits, partially offset by an increased cost of funding, but while the margins increase the volume of home loans would likely decrease along with house prices.
Mr Comyn now expects house prices to come off at the “upper range” of the 5 to 10 per cent as a result of the recent rate hike and expectations of more to come.
CBA said home loans increased by $6.9bn in the third quarter and business lending lifted by $3bn in the period.
“Continued growth in household deposits, home loans, business lending and business deposits was a feature of the quarter,” Mr Comyn said in a statement.
Ord Minnett described the result as “steady” though it commented that a tier 1 capital ratio of just 11.1 per cent may mean it waits until it completes the sale of a 10 per cent shareholding in Bank of Hangzhou for $1.8bn before conducting its buyback.
UBS retained a neutral rating, noting that operating performance was tracking slightly below consensus forecast.
Morningstar predicts the bank’s net profit could rise up to 45 per cent from the FY 21 result to FY26 but still believes the bank is overvalued compared with Westpac and ANZ.
“I like the company but it’s hard to get excited about the price,” said Morningstar’s Nathan Zia.
The bank conceded that customer service via its call centre had taken a hit recently, with staff harder to hire and keep.
“For us and a variety of businesses it’s been harder to hire,” Mr Comyn said. “It’s a tighter labour market.”