Commonwealth Bank of Australia expects the severe competition for home loans that’s eroding market share for the country’s biggest lender to endure into next year, piling further pressure on its largest business.
(Bloomberg) — Commonwealth Bank of Australia expects the severe competition for home loans that’s eroding market share for the country’s biggest lender to endure into next year, piling further pressure on its largest business.
The firm’s decline in total housing loans in July likely extended into August after the bank’s decision to tilt toward shareholder returns. That’s according to Michael Baumann, executive general manager for home buying at Commonwealth Bank.
“Competition is so fearsome right now,” Baumann said in an interview in Sydney. “I feel it is at a level that we haven’t seen in the past and that will probably go into next year.”
Chief Executive Officer Matt Comyn is grappling with challenges to profitability amid the rare shrinkage in its mortgage portfolio. Banks are jostling for business amid pressure on margins as property prices rebound in an economy that’s showing signs of resilience.
An ultra-low unemployment rate and large savings buffers built during the pandemic are helping to limit increases in consumer arrears, with the majority of mortgage holders ahead on repayments. Still, low fixed-rate home loans are ending and households are contending with far higher borrowing costs as they negotiate new mortgage contracts.
Commonwealth Bank and National Australia Bank Ltd. rewarded shareholders with buybacks last month as the ramp up in interest rates offset higher funding costs that remain a headwind to margins.
With about 25% of the mortgage market, Commonwealth Bank remains the largest player, followed by Westpac Banking Corp, according to the most recent data from the prudential regulator in July. However, Baumann indicated there is a limit to how much he’s prepared to give away.
“The share loss that we had in July and probably the share loss that we had in August as well, means there’s only so much appetite that I have to lose share in the market,” he said. “But, at the end of the day, we have to do the right thing by our customers and also make sure we’re finding the right balance on our shareholder returns.”
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