CBA fixed rate home loans up 38%

The half-year results of Australia’s largest bank indicate a positive outlook for the Australian economy in 2021.

From the second half of 2020 to December 31, Commonwealth Bank’s (CBA) home loan book grew 5.6%, adding an additional $13 billion in mortgages, or 1.5 times the overall market growth.

The number of COVID deferred home loans — the subject of much attention during the year — fell just 8% to 25,000 active deferrals, a far cry from the 158,000 CBAs in the first half of 2020.

The figures are likely to ease fears of a potential “mortgage cliff” that Australia faced when the deferral expired in March.

CBA fixed rate mortgages have seen massive levels of growth, up 38% in the second half of 2020 compared to the first six months, which saw 10% growth.

Such growth in fixed rate borrowing was anticipated, with NAB chief executive Ross McEwan telling banking analysts last year that fixed rates could increase their market share by more than 20-30%, due to the certainty that fixed rates provide in uncertain times.

In response to various Reserve Bank rate cuts in 2020, the CBA cut fixed-rate mortgages by up to 100 basis points, but sometimes left variable rates unchanged.

ABC files again

Commonwealth Bank’s household deposits – including funds held in time deposits, savings accounts and transaction accounts – grew by 16.5% in the second half of 2020, and the bank is now funded at 75% by deposits.

This level of deposit funding is up from 55% 12 years ago, although the big bank offers historically low interest rates on term deposits, often below 0.40% per annum.

Term deposit rates offer mediocre interest rates on average, with a good portion having rates of 0% or close to zero.

And yet, Australia’s household savings rate hit a 46-year high in 2020, with household deposits rising by $113 billion in less than a year.

Earnings down but dividend better than expected

Commonwealth Bank’s after-tax net profit reached $3.89 billion and a statutory after-tax net profit of $4.88 billion, down 21% from the prior comparative period.

These are declines of 10.8% and 20.8% respectively, but according to the bank, this is a better than expected result given the “economic context characterized by historically low interest rates as well as than the continued uncertainty associated with COVID-19, which ultimately led to the first national recession in nearly 30 years.”

In a purported sign of confidence, Commonwealth Bank raised its interim dividend to shareholders by about $1.45 a share, up from 98 cents in the previous six months, though that’s about 75% of what it was. before COVID.

CEO Matt Comyn said the bank is well positioned in terms of economic and fiscal strength and will continue to support customers in the current climate.

“The last six months have been very difficult for many Australians. We are starting to see a marked turnaround in economic conditions, which of course is very good news for the future,” he said.

“This is mainly due to very effective management of the pandemic and a variety of government and commercial support measures that have been put in place.

“From our perspective, we have been focused on continuing to support our customers and our communities. We have been focused on strong operational execution that has enabled superior system volume growth.

“We have continued to strengthen our balance sheet to ensure we are well prepared for a range of different economic scenarios, and we have also updated our strategy to ensure we have bolder ambition going forward.”

  • NAB will release its own first quarter results on Tuesday, February 16
  • Westpac to release first quarter numbers on Wednesday, February 17
  • ANZ will do the same on Thursday February 18

Image source: Commonwealth Bank

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Priscilla C. Carnegie