Same issues, same result

For five years now, there have only been two drivers to trading bank profit growth in Australia – loan volumes and falling bad debt charges. In its last annual report, for example, the Commonwealth Bank of Australia (CBA) showed a five year summary of their financials. Margins have been flat, and non interest income has grown at less than 1% compound through that time. All revenue growth has been driven by loan growth, and almost all loan growth has been mortgage related. Similarly, CBA have grown share most aggressively in personal lending through recent years. CBA management have contended to us that in a downturn they will always outperform; given the high starting multiple, and the aggression with which asset growth has been pursued in recent years, this will be interesting to watch as this cycle unfolds. Read the full report in the attached PDF