Rising property prices and falling interest rates have helped Australia’s largest lender post a record profit while strengthening its hold on the home loan market.
Commonwealth Bank on Wednesday reported a profit of $10.25 billion, up 4% on the previous financial year.
The rise in profits was supported by growth in lending volumes and an improvement in net interest margins.
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Australia’s largest lender Commonwealth Bank reported a record profit of $10.25 billion. Picture: Getty
CBA’s total volume of home loans grew by 6% in the past financial year to $634 billion.
The bank reported a 0.09 percentage point lift in its net interest margin, which is the difference between the interest earned from lending money to borrowers and the interest paid to depositors.
Banks’ net interest margins are typically squeezed by falling interest rates, but CBA reported its margin increase was due to higher capital and hedge earnings.
The nation’s largest lender also marginally grew its market share, with more than a quarter of Australian home loans now held by the banking giant, and a third of Australians using CBA as their main financial institution.
The record result came after the Reserve Bank cut the cash rate to 3.6% on Tuesday – the third rate cut so far this year.
Falling rates and inflation lift disposable incomes
Commenting on the results, CBA chief executive Matt Comyn said the cost of living challenges households had faced in the past few years were easing as a result of falling interest rates and slowing inflation.
“Many households are now experiencing a rise in disposable income,” he said.
“Savings have increased across all age groups with younger Australians now increasing their financial buffers.
CBA chief executive Matt Comyn said borrowers’ cost of living challenges had eased.
The bank reported that home loan arrears stabilised in the June quarter, with 85% of home loan customers now ahead of their scheduled repayments.
Mr Comyn said discretionary spending had picked up and consumer confidence had improved, but households still remained stretched.
Investor lending grows as rates fall
CBA’s average new loan size grew by about 7% year-on-year, with a greater shift towards investment loans in its portfolio mix.
Investment loans accounted for about 41% of the bank’s new lending, and represented 31% of its total portfolio in the June quarter – up from 29% for the same period last year.
New Australian Bureau of Statistics lending data released on Wednesday shows lending to investors outpaced that of owner-occupiers in the June quarter.
Investor lending rose most rapidly in the Northern Territory, ABS lending data shows. Picture: Getty
The number of new investment loans rose by 3.5% in the three months to June, while owner occupier loans rose by 0.9%.
The biggest growth in investor lending was in the Northern Territory, where the value of investor lending jumped by about 20% in the June quarter, and was more than twice as high as the same period last year.
Darwin is in the midst of an investor-driven boom amid a supply shortage, with home values 6.6% higher than a year ago, according to the latest PropTrack Home Price Index shows.
Newly updated property price forecasts from ANZ predict Darwin home prices will surge a total 14.3% this year, and a further 6.1% in 2026.
Rising property prices lift loan values
While the ABS data shows the number of new loans for both investors and owner-occupiers was relatively flat compared to a year ago, the total value of loans rose by 7.2%.
On an annual basis, the total value of lending to established homeowners rose by 9.9%, outpacing that of both investors (6.9%) and first-home buyers (2.2%).
ABS head of finance statistics Dr Mish Tan said the average loan size had grown by 7.5%, reflecting higher property prices, particularly in Queensland, South Australia and Western Australia.
The RBA expects property prices to continue rising following Tuesday’s rate cut, but governor Michele Bullock said this was out of the central bank’s control. Picture: Nikki Short
The Reserve Bank said in its Statement on Monetary Policy, released Tuesday in conjunction with its cash rate decision, that house prices had grown faster than expected since the May rate cut and were expected to keep rising.
“Auction clearance rates, which can be a leading indicator for housing price growth, have trended a little higher since the start of the year to be slightly above historical averages,” the statement read.
“On-market supply remains tight, with total listings of homes for sale declining in Sydney and Melbourne in recent months.”
RBA governor Michele Bullock said in a press conference following Tuesday’s rate decision that the bank expected prices to rise as a result of rate cuts and hoped it would happen in a “nice, measured way”, but said property prices were beyond the RBA’s control.
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