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The major bank has begun focusing on proprietary distribution, with ‘lower margin’ new broker fundings having dropped $5 billion in the first quarter.
Major banking group Commonwealth Bank of Australia (CBA) has revealed that it has shifted its focus to proprietary distribution for its home loans.
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According to its results for the first quarter of the 2024 financial year (1Q24), Australia’s largest mortgage lender saw home loan volumes drop over the three months to 30 September 2023.
The group saw home loan balances decline $4.5 billion in the September quarter, which it said was “a consequence of [its] focus on increasing [its] share of Australian home loan revenue”.
Moreover, CBA stated that the decline of its balances “reflects a disciplined approach to pricing, which ensures marginal shareholder returns remain above the cost of capital in a highly competitive market”.
The banking group, which includes CBA and Bankwest, stated: “We have focused on proprietary distribution with new proprietary home loan fundings in the quarter broadly flat on the prior comparative period at $18 billion, while lower margin new broker fundings declined [by around] $5 billion over the same period.”
The revelation of the lender’s focus on proprietary channels followed CBA chief executive Matt Comyn’s comments in July that brokers remain a “really important part of support” for customers.*
In its 2023 financial year results, the banking group revealed that while Bankwest broker flows had been growing (as the bank redirects investment to digital banking and the broker channel amid branch closures), when looking purely at the loan book of the Commonwealth Bank of Australia, new funding was down by around 13 per cent (or $20 billion) over the year to June.
Brokers were responsible for around 39 per cent of new CBA flows in the six months to June 2023.
While only marginally lower than in the same period the year before (when it was 40 per cent), this marked the lowest proportion of broker-originated loans for the big four bank in recent years (tied joint last with FY21).
When comparing its Australian mortgage growth to the same period last year, the group’s Australian mortgage book was up 3.1 per cent.
Business lending, however, rose 11.2 per cent over the year (or by $2.2 billion in the quarter). CBA’s continued focus on growing its business banking franchise also saw business transaction accounts increase by around 36,000 in the quarter – to nearly 1.2 million accounts – up 10 per cent on the prior comparative period.
The figures came after APRA statistics showed that the Commonwealth Bank of Australia’s (CBA) mortgage portfolio has been falling in recent months.
It fell by $1.9 billion in July, $1.4 billion in August and $794 million in September 2023, according to monthly authorised deposit-taking institution (ADI) statistics released by the Australian Prudential Regulation Authority (APRA).
CBA’s owner-occupier loan book fell by $836 million in September alone, taking balances to $362 billion. On the other hand, CBA’s investor book saw a small recovery over the month of September, up by $43 million to hold steady at around $180 billion.
CBA, however, has still maintained its top spot in mortgage market share.
Arrears on the rise
The 1Q24 figures showed that the major lender also saw a slight increase in its home loan arrears, up 2 bps to 0.49 per cent, which was a return to its levels in June 2022.
CBA stated that while the high interest rates have impacted borrowers, arrears have held relatively low due to the strong labour market and low unemployment rate.
Mr Comyn stated: “We are very conscious that many Australians are feeling under pressure in the current environment.
“While some remain well-positioned, we recognise that others are finding the higher cost of living very tough. Our customers are continuing to take practical steps to navigate through a period of tighter household finances and we are here to help them.
“As a result, we have seen a modest increase in consumer arrears over recent months. Our balance sheet strength means we are well-positioned to support those customers who need it.”
The major banking group reported unaudited statutory profit of $2.5 billion in the quarter, with unaudited cash NPAT ($2.5 billion) being flat on 2H23 quarterly average and up 1 per cent on the prior comparative period.
*This story was updated on 16 November following an amendment to the July 2023 story.
[Related: Brokers ‘really important’ to Bankwest customer support: CBA CEO]
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