The Commonwealth Bank’s stellar results suggest the overall strength of the banking system will enable it to weather the interest rate correction without a crash landing.
Commonwealth Bank CEO Matt Comyn is optimistic about weathering the economic headwinds, as chairman Catherine Livingstone steps down.Inevitably, the housing market pumped up by cheap money is softening. CBA chief executive Matt Comyn says there is now “heightened risk” and the bank is “watching very closely”, following the benign credit environment of the financial year 2021-22, which featured a significant improvement in loan impairments.
While anticipating a short, sharp shock as cost of living pressures and higher interest rates bite, Mr Comyn is optimistic about weathering the economic headwinds, given the brighter medium-term outlook.If the soft landing scenario plays out as forecast by both the Reserve Bank and the Treasury, the initial lifting of interest rates will level off after working relatively quickly to bring inflation back down into the 2 per cent to 3 per cent target band in 2023.
The strength and profitability of Australia’s well-capitalised and generally well-regulated banks is a national asset for a commodity-exporting economy exposed to global volatility. The banks’ strength, built mainly on the rock of their property loan books, is also a barometer of Australia’s frontier growth economy that, in normal times, draws in people from around the world to live, work, and buy a home.
CBA is also bearing the downside of digital diversification and the collapse in the buy now, pay later sector, as the value of its $100 millionYet the intensification of competition for home loan market share has crimped CBA’s net lending margins. It is also driving ANZ’s bid to become a bigger and better competitor byLending margins – the difference between funding costs and interest charged to borrowers – tend to shrink and expand as interest rates fall and rise.
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