Above-system home lending volumes and record-high deposit growth have cushioned the COVID-induced hit to the major bank’s bottom line.
The Commonwealth Bank of Australia (CBA) has released its full-year results for the 2020 financial year (FY20), posting a cash net profit after tax (NPAT) of $7.3 billion, down 11 per cent from $8.2 billion in FY19.
The bank’s result was underpinned by a sharp increase in loan impairment expenses in response to credit quality concerns off the back of the COVID-19 crisis, up from $1.2 billion to $2.5 billion – equating to approximately 33 bps of CBA’s loan book.
However, the hit to CBA’s bottom line was offset by strong growth across its core businesses, particularly home lending.
CBA’s mortgage portfolio grew 1.3x system, increasing by over $18 billion, from $467 billion to $485 billion.
Home loan settlements were up 23 per cent, from $43 billion in FY19 to $53 billion in FY20.
Owner-occupiers drove CBA settlement growth, making up 75 per cent of the bank’s mortgage flows, up from 71 per cent in the previous corresponding period.
As a result, CBA’s share of the mortgage market increased from 25.2 per cent to 25.7 per cent.
CBA’s proprietary network originated 53 per cent of new home loans, with the share of broker-originated loans slipping from 48 per cent to 47 per cent.
Despite the recent fall in residential property prices, the average size of home loans settled by the bank increased from $320,000 to $354,000.
CBA also reported a 5.1 per cent increase in its business lending portfolio, up $7 billion to approximately $93 billion.
The group also benefited from strong household deposit growth, increasing by a record high of $25 billion (9.3 per cent) to $279 billion.
Credit quality breakdown across mortgage book
Arrears across CBA’s mortgage portfolio dipped from 0.68 per cent in FY19 to 0.63 per cent.
Fewer home loans ended FY20 in negative equity, down from 4.5 per cent in FY19 to 3.8 per cent.
A greater portion of mortgage customers were ahead on their repayment, up from 78 per cent to 80 per cent.
The share of mortgages in possession also decreased, down from 6 bps to 3 bps.
The dynamic loan-to-value ratio across CBA’s mortgage portfolio increased from 52 per cent to 53 per cent.
As at 31 July, mortgage deferrals made up 8 per cent ($48 billion) of CBA’s total portfolio, representing approximately 135,000 home loans, down from a peak of 154,000 loans.
According to CBA, 25 per cent of borrowers with deferral arrangements have since partially resumed repayments, with 14 per cent ahead on their repayments by at least 12 months.
Meanwhile, approximately 15 per cent ($14 billion) of CBA’s business loan customers have deferred repayments, representing approximately 59,000 loans, down from a peak of 86,000.
Assessment and outlook
Reflecting on the group’s overall performance, CBA CEO Matt Comyn acknowledged the recent challenges posed by both the bushfires in early 2020 and the ongoing COVID-19 crisis.
“From our perspective, we’ve been very focused on doing what we can, which is to continue running our business as well as possible, responding and supporting to help our customers, making sure we’re consistently executing our strategy, as well as ensuring we have an even stronger balance sheet, to make sure that we’re in the best possible position to respond to a variety of different economic scenarios,” he said.
Looking ahead, Mr Comyn said the economic outlook “still remains highly uncertain”.
“We have seen a sharp economic contraction during the course of the year as a result of the pandemic,” he said.
“Not quite as bad as we’d first feared, but certainly the pace of recovery does look like it will be longer.”
He continued: “Overall, we’re expecting GDP to fall by about 4 per cent over this calendar year, but to bounce back by about 2 per cent next year.
“Unemployment is likely to peak towards the end of this calendar year at close to 10 per cent, which is clearly a significant economic impact overall.”
However, the CBA CEO noted that Australia is “well positioned’ to manage future headwinds.
“We’ve been able to provide substantial income support via the federal government, obviously working very closely with the states, regulators, financial institutions, to provide substantial support over that time.
“There is a broad and wide range of infrastructure projects in the pipeline, and there are a number of other initiatives that are and will be required to make sure that we can try to bring that unemployment rate down in subsequent years.”
This article originally appeared on Smart Property Investment's sister brand, Mortgage Business.