The Commonwealth Bank CEO does not expect the passage of the Best Interests Duty Bill to materially alter the bank’s operational approach in the third-party channel.
Last week, the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers [2019 Measures]) Bill 2019) passed both houses of Parliament.
The bill implements recommendations 4.7 and 4.2 of the banking royal commission, by amending the Credit Act to:
- require mortgage brokers to act in the best interests of consumers; and
- address conflicted remuneration for mortgage brokers.
Speaking to The Adviser following the release of the Commonwealth Bank of Australia’s (CBA) half-year results for the 2020 financial year (HY20), CEO Matt Comyn welcomed the new reforms, adding that CBA would consult with broking industry stakeholders throughout the implementation process.
“As you’d expect, we’re supportive of it and we understand and would seek to engage very closely with our broking partners who, during this period, we’ve worked very closely with,” he told The Adviser.
However, Mr Comyn said he does not expect the newly legislated bill to trigger a significant shift in the bank’s dealings with the broker channel.
“We anticipate a degree of change, but we don’t see a big change overall to our strategy,” he said.
“[The] broker channel continues to be a very relevant distribution channel in Australia for meeting customers’ home-lending needs and we want to make sure that we’re a very important partner for them.”
The chief executive claimed that in consulting with the bank’s broker partners, CBA would ensure that all of its products, processes and services are “well designed to fulfil” the best interests duty obligations.
Aussie to remain in limbo
Mr Comyn has also revealed that CBA is yet to determine the fate of its wholly owned subsidiary Aussie Home Loans.
In June 2018, CBA announced that it would demerge its wealth management and mortgage broking businesses, which would include the sale of its minority stake in Mortgage Choice and the sale of wholly owned subsidiary Aussie Home Loans.
CBA had initially planned to spin off its third-party businesses into an independent wealth and mortgage broking group, separately listed on the ASX.
However, the bank suspended its planned spin-off in March and completed the sale of two of the wealth businesses involved in the demerger – Colonial First State Global Asset Management and Count Financial.
The major bank is yet to confirm how it plans to proceed with the demerger of its broking business, with the CBA CEO now claiming that the demerger has been held up by regulatory changes in the broking and insurance space.
“There’s been some degree of regulatory uncertainty, which is not unexpected in the wake of the royal commission, so to the extent that it would be appropriate to exit either of those businesses (includes general insurance),” he said.
“We do so on the basis that all of the relevant changes and legislation was in place.
“Clearly, there’s a very rapid agenda of implementation from the government this year. We anticipate implementing all of our recommendations in the first half of the calendar year as well.”
He added: “Subject to all of those, then I’d probably have a more fulsome update at the full year.”
Comyn ‘surprised’ by home-lending growth
In its HY20 results, CBA has posted a cash net profit after tax (NPAT) of $4.47 billion, down 4.3 per cent on HY19.
The decline in the bank’s net earnings was driven by a 2.6 per cent increase in its operating expenses to $5.4 billion, while its operating income was flat at $12.4 billion.
However, underlying the bank’s HY20 performance was growth in its home-lending business, with volumes up 8 per cent on the previous corresponding period, from $49 billion in HY19 to $53 billion.
CBA Group’s total mortgage portfolio grew by approximately $17 billion, from $455 billion to $472 billion – 1.5 times above system.
This follows the release of the latest data from the Australian Prudential Regulation Authority (APRA), which revealed that CBA far outstripped its big four peers in the December quarter
Reflecting on the result, Mr Comyn told investors that he was “surprised” by the group’s home-lending performance, which he described as “unusual” given the bank’s size.
“I’ve not seen [this level of growth] since the GFC, it surprised us that it’s persisted,” he said.
Mr Comyn attributed the bank’s performance in the mortgage market to “consistency” in its home loan approval process, pointing to similar trends reported by Macquarie Bank.
“The main driver [of the growth] is that we’ve been very consistent around operational execution and turnaround times,” the CEO continued.
“One of our other competitors gave a briefing, [and] similarly we’ve seen that they’ve done a very good job around operational execution.
“There’s been greater variance in the market and so those that have been consistent [have] been rewarded because others haven’t, particularly in the broker market, because that’s where flow has shifted between institutions, which is always the case.”
Mr Comyn added: “Brokers will move to institutions where they know they will get speed to decision in the same day or within 48 hours, versus perhaps waiting much longer than that.”
CBA’s growth coincided with an increase in the proportion of new loans originated via the broker channel, from 45 per cent to 48 per cent.
However, Mr Comyn does not expect the bank to sustain similar levels of home-lending growth in the second half of FY20.
“I feel like we’ve had a good start to the year, so I feel good about January and February, but we wouldn’t expect our volume performance in home lending to persist at these levels,” he said.
CBA to roll out new product
Following the release of CBA’s HY20 results, Mr Comyn also revealed that the bank plans to roll out a new product to home loan customers this month.
The CBA CEO told The Adviser's sister title, Mortgage Business, that the product, Home Loan Compassionate Care, would provide mortgage customers with 12 months of cover in the event of serious illness or death.
“It’s a product that we’ve looked at for some time as part of our long-term partnership with AIA,” he said.
“We took the opportunity to develop what we believe is a market-leading product. I’ve personally dealt with a number of [customers] who I think would personally benefit from a product such as this.
“We intend to make it free and available to all of our customers.”
Mr Comyn said the bank would provide additional information about the initiative following the launch later this month.