Source : THE AGE NEWS
By Clancy Yeates
Commonwealth Bank chief executive Matt Comyn says the banking giant expects the Reserve Bank will cut interest rates next week and further reductions are probably on the cards later this year, highlighting the decline in inflation.
The Reserve Bank’s board will meet next week to set interest rates after a turbulent period on global markets, which have been buoyed by this week’s announcement of a trade truce between the United States and China.
“There is heightened risk to the global economy from geopolitical and macroeconomic uncertainty”: Commonwealth Bank chief executive Matt Comyn. Credit: Oscar Colman
As CBA reported $2.6 billion in profit for the March quarter, Comyn said on Wednesday the central bank was likely next week to acknowledge the volatile global environment, but its main focus would be on the decline in domestic inflation to its target band of 2 to 3 per cent.
“We certainly still think it’s likely that they will reduce by 25 basis points,” he said. “I think it’s incredibly unlikely it’s more than that, even though the market seems to be pricing in some possibility of that.”
Financial markets view a 0.25 percentage point cut in the cash rate next week as a near certainty, though this week’s 90-day pause in US President Donald Trump’s trade war with China caused investors to cut their bets of aggressive reductions in interest rates later in the year.
Markets are expecting about three cuts in the cash rate over the calendar year and Comyn said this felt “about right”, but added it was not “clear cut” and would depend on the economic data.
CBA capped off a round of bank updates on Wednesday, when it reported cash net profit after tax in the third quarter rose 6 per cent compared with the same three months a year earlier, in a result boosted by strong business lending.
The unaudited result was flat compared with the quarterly average for the first half of CBA’s financial year. CBA shares gained 0.6 per cent in early trade.
Comyn said it had been a “challenging period” for many households and businesses under pressure from the high cost of living, and the bank was providing support to customers who needed it most.
Despite the risks, Comyn said inflation in Australia was declining, and noted government investment was helping to support employment and economic growth.
“There is heightened risk to the global economy from geopolitical and macroeconomic uncertainty which could slow the domestic economy. Australia is in a relatively strong position to navigate the challenges,” Comyn said in a statement.
CBA reported $2.6 billion in profit for the March quarter.Credit: Louie Douvis
CBA’s operating income rose 1 per cent thanks to lending growth and higher income from trading, while its expenses also grew by 1 per cent in the quarter.
Home loan arrears rose 5 basis points to 0.71 per cent in the quarter, while personal loan arrears lifted by 19 basis points, a move CBA said was largely in line with seasonal trends. Comyn said CBA was “very comfortable” with the bank’s level of arrears, which had been expected to move higher.
The update follows a flurry of results from CBA’s rivals last week, with lenders pointing to competitive conditions in retail banking, which have pressured margins in the industry. CBA said its net interest margin – which compares funding costs with what the bank charges for loans – was stable once non-recurring earnings were excluded.
CBA said 68 per cent of new mortgage lending had occurred through the bank’s own sales channels, rather than mortgage brokers – a higher proportion than for rivals.
UBS analyst John Storey said this would have helped CBA’s profits in retail banking, as he also underlined the bank’s growth in business lending, where it expanded at 1.3 times the industry average.
Business lending has emerged as a critical battleground for banks, and Comyn said the bank had been comfortable expanding faster than the market average in business lending, and indicated it would keep targeting this segment.
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