CBA: direct loans 'as good as they are going to get'

The statement came following the bank’s end of year financial results, which revealed that brokers made up 49 per cent of new business in the bank’s Australian home loan portfolio, up 4 per cent from last year, while its proprietary network for new business dropped by the same amount.

Likewise, brokers made increases on the overall portfolio, making up 45 per cent of home loan sales to the end of June 2016, up from 43 per cent at the end of the last financial year (while the proprietary portfolio dropped by 2 per cent).

At the briefing for the financial results on Wednesday, Mr Narev was asked what the bank was going to do about boosting the level of proprietary network sales, which “have been flat [or falling] for seven consecutive years”.

Responding to this, Mr Narev said: “Go back eight years ... we said at the time it was as good as we would ever get in investing in proprietary networks, and as good as we would ever get in continuing to build on the historic strength of the Commonwealth Bank, which is home loans.

“We said way back then that we [thought] the broker market would be a critical channel where customers were going to choose to deal with their banks [and] that no matter how well we did, that would be a factor that would continue. And we've seen it continue.

“So, we say two things; we see the broker channel as an ongoing channel where customers are going to want to do business — [as] the proposition of the broker channel in terms of its neutrality and its separation from the banks is pretty clear to customers — [and] we also say that we are going to invest in making sure that as many of our customers as possible are going to want to do proprietary business with us.”

However, Mr Narev acknowledged that even at the best of the bank’s ability, its proprietary networks would “never be so good that [they could] reshape the market".

“If you look at the Commonwealth Bank's performance relative to others in the market, we're pretty happy where we got to,” he said.

Mr Narev went on to say that the bank will continue to make investments in the quality of its digital channels to “work on the strategy where customers are getting a much more seamless interface between deposit products, home lending products, their super, their insurance and other wealth management needs”.

“But, I would say that if I were here in 10 years and had a market share above 25 per cent, and the margin is where it's at, I'd take that any day of the week.”

The CBA results show that retail banking home loans rose by 9 per cent on the last financial year (to $4.1 billion), helping to drive the 3 per cent increase in cash net profit, which came in in at $9.4 billion after tax.

Overall, the bank had 1.9 million home loan customers in 2015/16, and handled 25.3 per cent of the Australian home loan market share and 21.8 per cent of the New Zealand home loan market share. Just over half (51 per cent) of the CBA’s balance sheet was home loans, which it described as “stable/long term”.

While home loan arrears were stable year on year, and while the NSW portfolio improved, the Western Australia and Queensland portfolios continued to “experience stress”. The bank also suffered from loan impairment expense, which was up 27 per cent to $1.2 billion, predominantly due to “higher provisions for resource, commodity and dairy exposures”.

The fully franked final dividend was $2.22 per share, taking the full year dividend to $4.20, which is flat on the prior year. The CBA paid out 76.5 cent of its profits as dividends.

Speaking of the bank’s dividend and interest rate cut decision, Mr Narev said: “We’ve got nearly two million Australian home loan customers, and we get it, they want to pay as little interest as they can on their home loans ... But we’ve also got 11 million depositors, 800,000 Australian households who own shares and millions more who own them through their pension funds ... and collectively they have an investment of about $100 billion in the Commonwealth Bank. Just like the home loan customers, these are Australians from all walks of life. This is not the elite of Australia.

“As a result of the decisions that we made last week, if you’re a depositor you have the opportunity to earn more from your deposits, if you are a borrower, you are paying less on your borrowings, and if you’re a shareholder, you’ve got some greater degree of security of your dividends. And critically, overall we’ve continued to be strong as an institution.

“Our job is to continue to achieve that balance. Sometimes we’re going to be unpopular by doing it, but the alternative is to have a weaker bank and a weaker economy.”

[Related: CBA sets record straight on ‘mortgage war’]