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Broker-originated loans drop by whopping 8% at CBA

by Reporter6 minute read
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The proportion of new home loans being written by brokers to the Commonwealth Bank has dropped by a whopping 8 per cent in one year, as the bank focuses on its proprietary channel.

According to the bank, for the six months ending June 2017, brokers wrote just 38 per cent of new home loans for the retail banking services, down from 46 per cent on the prior comparative period.

The majority of the fallout in broker-written mortgages occurred in the second half of the financial year, dropping from 43 per cent (as at December 2016) to 38 per cent by June.

While this specific drop has not been accounted for, it follows on from a hiatus in investor refinances through the broker channel earlier this year, and from poor broker sentiment towards the bank.

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For home loans in Australia alone, the flow of new mortgages coming through the broker channel dropped by 7 per cent (from 50 per cent to 43 per cent).

However, the broker share of total home loan portfolio remains at 41 per cent, while the third-party share of the home loan portfolio in Australia ticked up to 46 per cent (from 45 per cent as at June 2016).

The proprietary channel now accounts for 62 per cent of new home loan business (for the retail banking services), up from 54 per cent in the same period last year.

According to Ian Narev, CBA's managing director and CEO, the uptick in proprietary share is a result of “the combination of new branch formats and our people working together”.

‘Investing heavily’ in an experience that will make our customers go direct

Speaking at a media briefing on 9 August, Mr Narev said that the bank is “committed to the broker channel” and that brokers provide a “good proposition for customers”.

However, he added: “But, at the same time, [the bank] can see the benefits of continued investment in our proprietary channels.”

Given the recent announcement of the bank's acquisition of the remaining Aussie shares, The Adviser asked Mr Narev what his strategy for the major brokerage was.

Mr Narev said that the bank was “grateful to have the opportunity” to acquire the remaining shares and was “committed to the broker channel”.

He revealed: "Right from day one of the investment in Aussie Home Loans in 2008, the underlying strategic premise for us was to make sure that Aussie represented a complete stand-alone entity and operation from the Commonwealth Bank. [That was] absolutely critical. Because the proposition that a broker provides its customers is independence, and they come to Aussie for independence.” 

As an example of that “independence”, Mr Narev highlighted how there was an advertising campaign a few years ago where founder John Symond was telling people they “should never go to the big banks”. 

Mr Narev said: “I think that was a pretty good example of how the value was created in that business and that is how we intend to continue to run it.” 

However, he reiterated the importance of the proprietary channel (which Mr Narev told The Adviser in February was a 'strategic priority' for the bank).

He said: “We also want to provide a very compelling [experience] to customers through our own channels. So, we are investing heavily in an experience that will make our customers and other customers want to come to us and not through the broker channel.” 

The CBA CEO said that he believed running “competing channels” was “really good for customers". 

Broker remuneration talks ongoing

When asked a follow-up question by The Adviser about the bank's strategy for broker commissions in light of the Sedgwick and ASIC reviews into remuneration, Mr Narev said: “In terms of the Sedgwick recommendations, we have been looking at those very closely and we have already commented that we think Stephen Sedgwick did a really thorough and really important piece of work which we support fully. 

“We are at an advanced stage of implementing those recommendations in all parts of the Commonwealth Bank in terms of our own people. In terms of the broker community, obviously there are different stakeholders that we need to engage with, and they are the topic of ongoing discussions as to how we make sure that we get the spirit and intent of the Sedgwick recommendations in an industry [that] is good for customers and retains that important customer proposition.” 

Mr Narev concluded: “I suspect we will all have more to say about that pretty soon."

The annual results show that, over the year, the bank provided $197 billion in new lending to customers, including providing 330,000 home loans. Customer deposits made up 67 per cent of the group’s total funding.

Banking income grew by 4.3 per cent due to volume growth in home lending, business lending and deposits.

The Commonwealth Bank of Australia posted a cash net profit after tax (NPAT) of $9.881 billion for the 2017 financial year, up by 4.6 per cent on the previous financial year.

This is up 9 cents on the 2016 financial year and means a dividend payout ratio of 75 per cent of cash NPAT.

However, the group’s net interest margin fell 3 basis points to 2.11 per cent due to higher wholesale funding costs and increased competition in home and business lending.

On a cash earnings basis, its return on equity stood at 16 per cent, down from 16.5 per cent a year earlier.

Cash earnings per share were up to $5.75 per share from $5.55 in the 2016 financial year.

[Related: CBA confirms acquisition of major brokerage]

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