In September’s quarter this year, The Commonwealth Bank of Australia (CBA) reported a cash profit of 2.65 billion dollars. The main reason for this increase is due to the increased lending volumes.
As of November 8th, the updated reporting shows an increase of 2.7 per cent in home lending volumes in 1Q18. The report stated that “Home lending growth was managed within regulatory limits. The credit quality of the Group’s lending portfolios remained sound.”
This performance coming from the CBA is surprising when you consider that brokerage firms and non-major banks have reported the negative effect that credit restrictions have caused on their revenues and profits.
Yellow Brick Road, one of those non-major banks affected by stricter credit guidelines, acknowledged this in its annual report, according to Mark Bouris, the bank’s executive chairman. “Lending restrictions by the regulators affected volumes across the sector and credit conditions have continued to tighten,” said Bouris.
In a twist of favor towards the CBA, they experienced a four per cent growth in its operating income, hinged by the improved margins and growth in loan volume.
The Loan Impairment Expenses for this major lender were low at only $198 million, which is another sign of its solid credit quality.
On the business end of lending, a decrease of one per cent has been reported, notwithstanding analyses from industry experts such as David Ellis of Morningstar, who predicted credit growth for the business loan sector.
Four major banks increased their interest rates for borrowers early this year after the Australian Prudential Regulation Authority (APRA) announced they were tightening credit conditions for loans. The CBA elevated its interest rates by 30 basis points for interest-only and new borrowers.
This increase was met with much criticism, which led to a parliamentary inquiry to examine if major banks had taken advantage of the new regulatory modifications with the intention to increase their own profits.
The outgoing chief executive, Ian Narev, denied these accusations when questioned by parliament in Canberra.
What does all this mean for the Australian economy and business and housing growth?
Will the CBA and other major banks continue to profit from the tighter credit conditions?
Will this issue continue to adversely affect non-major banks and brokerage firms, or will things turn around because of it?
First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370