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Home loan growth bodes well for CBA profit results tomorrow

Brendon Lau
Commonwealth bank

A big jump in home loan commitments could pave the way for Commonwealth Bank of Australia (ASX: CBA) to deliver some pleasing news tomorrow.

Australia’s largest mortgage lender is scheduled to hand in its profit results on Wednesday and expert opinion is divided on whether management will beat or disappoint the market.

It’s been a tough 18 months for the big banks but the 4.4% jump in the value of new loan commitments for housing in December could give investors a reason to back the sector.

Loan growth at 3 year high

The latest data from the Australian Bureau of Statistics (ABS), which was released today, showed that owner-occupiers and property investors are stepping back into the housing market.

The 4.4% increase, which excludes refinancing, is the best monthly result since September 2016 when the gain was 4.9%, according to the Australian Financial Review.

“Strong growth in the value of new loan commitments for housing during the second half of 2019 has seen the series increase 20.7 per cent from the most recent low point in May 2019,” said ABS Chief Economist, Bruce Hockman.

“New loan commitments for owner occupier housing was the predominant driver of this growth, up 22.8 per cent since May 2019.”

Investors finally stirring

Owner-occupiers are leading the charge with loans from this group improving 6.2% to $4 billion. Investor loan growth may be still down from the March 2017 peak, but at least it rose 2.8% to $5.4 billion.

Investors have been slow to return to the market after the housing correction. Banks have tightened lending criteria for new mortgages, especially to this group.

Can CBA capitalise on the growth?

The fact that the housing loan market is growing at a decent clip could prove to be a bright spot in CBA’s results and outlook statement tomorrow.

It may not be the only one that will benefit though. There are anecdotal signs that National Australia Bank Ltd. (ASX: NAB) is gaining market share through its very aggressive $4,000 rebate program.

A mortgage broker contact told me that NAB received so many applications that it will take them three to four weeks to even start processing a new loan.

Westpac Banking Corp (ASX: WBC) has also been forced to match the rebate for new customers (at least its subsidiary Bank of Melbourne is).

Foolish takeaway

The growth is good news but it won’t change the fact that bank profits are under pressure as net interest margins are getting squeezed.

While the margin challenge is likely to persist in this low interest rate environment, at least the market is growing, which should give the big four a way to offset their lower profitability.

The post Home loan growth bodes well for CBA profit results tomorrow appeared first on Motley Fool Australia.

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Motley Fool contributor Brendon Lau owns shares of Commonwealth Bank of Australia and Westpac Banking. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020