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Speaker 1: Welcome to the Fear and Greed Business Interview.

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Speaker 2: I'm Sean Almer.

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Speaker 1: The Commonwealth Bank has posted a five point one to

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Speaker 1: three billion dollar profit for the six months to the

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Speaker 1: end of December. The result was ahead of expectations and

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Speaker 1: the bank increase dividend to two dollars twenty five is

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Speaker 1: share and reported solid lending growth and credit quality. But

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Speaker 1: being Australia's biggest bank and largest company overall means it's

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Speaker 1: also got a unique insight in the economy because of

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Speaker 1: its sheer number of customers right across the country and

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Speaker 1: that's why an interview with Chief executive Matt Common is

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Speaker 1: so interesting. Once again, in this reporting season, we're working

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Speaker 1: with the team at osbiz to bring new interviews with

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Speaker 1: the leaders of some of Australia's biggest companies. Osbiz is

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Speaker 1: Australia's leading provider of live and on demand video of

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Speaker 1: the latest news in Australian business markets, economy and startups.

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Speaker 1: Sign up for free at OSBIZAUSBI said osbiz dot com

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Speaker 1: dot Au. In today's interview, Juliet Sali speaks with Matt

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Speaker 1: Common and started by asking for the highlights of the

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Speaker 1: results in his own words.

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Speaker 3: Well I think, overall, from our perspective, the ability to

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Speaker 3: be able to continue to support our more than sixteen

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Speaker 3: million customers, keep investing in our customer experience and protecting

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Speaker 3: our customers from things like scams and fraud, and also

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Speaker 3: providing strength and stability in the Australian economy.

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Speaker 4: You did have a six percent rise in operating expenses.

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Speaker 4: What is the outlook for the second half given we

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Speaker 4: are expecting interest rate cuts, but of course you've also

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Speaker 4: got staffing pressures.

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Speaker 3: Yes, and the biggest driver of that increase in operational

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Speaker 3: expenses was an increase in our investment envelopes. Every year,

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Speaker 3: our cash spend is going to be up eleven percent

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Speaker 3: or it was for this first half versus the prior

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Speaker 3: corresponding period. That's in particular to support, as I said,

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Speaker 3: higher levels of investment in our customer experience and also

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Speaker 3: importantly in areas like scams, for aud cyber financial crime,

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Speaker 3: where we spent more than four hundred and fifty.

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Speaker 2: Million dollars in the first half.

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Speaker 3: To both protect our customers and the broader community.

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Speaker 4: What are you seeing in terms of your troubled bad

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Speaker 4: loan book, and particularly when you see that Victoria makes

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Speaker 4: up a lot of that.

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Speaker 3: Yes, So what we hear consistently from households and of

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Speaker 3: course businesses is ongoing pressures that have come from higher

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Speaker 3: cost of living, and we see and hear those acutely.

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Speaker 3: But notwithstanding that, what we actually saw during the six

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Speaker 3: months to thirty one December was pretty benign credit conditions.

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Speaker 2: So actually loan losses.

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Speaker 3: Were well below the average that we would expect to

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Speaker 3: see across both our personal and business customers, specifically when

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Speaker 3: we do get into customers that are in financial difficulty. Yes,

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Speaker 3: there is a higher proportion that's coming from Victoria. We

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Speaker 3: do see a weaker economic and sentiment coming out of Victoria,

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Speaker 3: which we hope obviously turns around. But more broadly, actually

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Speaker 3: we think the credit performance was a bit better than

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Speaker 3: we were expecting against that backdrop of slowing economic conditions

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Speaker 3: and ongoing pressures on households.

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Speaker 4: You've mentioned that you do expect that the economy will

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Speaker 4: turn a corner, particularly with these expected interest rate cuts.

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Speaker 4: What is your data showing you though about household savings

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Speaker 4: and particularly how younger customers are firing.

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Speaker 3: Yes, it's been very difficult for households, and in particular

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Speaker 3: probably younger customers over the last couple of years as

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Speaker 3: rates increase, but also importantly, prices are twenty percent higher

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Speaker 3: across the economy than four years ago.

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Speaker 2: What we did see in this period, and this is

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Speaker 2: a function.

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Speaker 3: Of both the Stage three tax cuts and some of

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Speaker 3: those rebates, like the electricity rebates. We did see a

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Speaker 3: higher level of savings across the economy. We should see

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Speaker 3: that obviously in our accounts or our deposit accounts, but

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Speaker 3: also customers who are repaying their home loan or actually

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Speaker 3: depositing to into an offset account, which of course offsets

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Speaker 3: or reduces your loan balance that was running at about

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Speaker 3: double what we'd ordinarily see. So combination of as inflation

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Speaker 3: has continued to reduce, that's obviously putting less pressure on prices.

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Speaker 3: Higher level of savings from the areas that I mentioned

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Speaker 3: leading to an improvement in household incomes, and we think

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Speaker 3: that's going to continue going into twenty twenty five for

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Speaker 3: the rest of the year, and as you said, we

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Speaker 3: do anticipate rate cuts on the near term horizon.

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Speaker 4: Some economists have mentioned to me that you really need

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Speaker 4: one hundred basis points of rate cuts to make a

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Speaker 4: real difference to a lot of mortgage holders, how exposed

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Speaker 4: are you to credit losses due to higher rates and

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Speaker 4: some of this household debt.

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Speaker 2: Well, as I said, what we've been surprised.

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Speaker 3: To see is how much pressure of course has been

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Speaker 3: on households, but also how customers and they've had to

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Speaker 3: make some real sacrifices have stayed on track and terms

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Speaker 3: of their loan repayment. So we see and feel the

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Speaker 3: pressures acutely on households and to a lesser extent businesses,

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Speaker 3: but it's actually not translating at this point into higher

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Speaker 3: loan losses. That's, of course the function of very low

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Speaker 3: levels of unemployment in Australia, and I think that's been

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Speaker 3: a very successful outcome over now many years, being able

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Speaker 3: to retain the increases in the labor market.

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Speaker 2: And so I mean as we look forward, we.

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Speaker 3: Do think that some of those pressures will start to alleviate.

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Speaker 2: And yes, small.

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Speaker 3: Changes in the cash rate, I don't think they'll make

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Speaker 3: a huge difference in terms of household incomes in the

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Speaker 3: near term. I do think it will support an increase

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Speaker 3: in more positive sentiment and just a sense that actually

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Speaker 3: the long awaited rate cuts and relief have actually started,

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Speaker 3: and I think that will continue. Obviously as we go

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Speaker 3: throughout twenty twenty five and into the next year.

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Speaker 4: You've got a near fifty percent market share of Australia

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Speaker 4: mortgagees not sold via a mortgage broker. How or why

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Speaker 4: do you feel that you're beating your competitors in this space.

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Speaker 3: Well, I think the broker industry has continued to grow

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Speaker 3: and has become a more significant.

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Speaker 2: Part of the overall market. Like any business, we.

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Speaker 3: Of course like to be able to serve our customers directly.

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Speaker 3: The mortgage brokers are a very important channel, but we

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Speaker 3: also have invested a lot in the experience for our

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Speaker 3: customers to come directly to us.

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Speaker 2: We've got a.

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Speaker 3: Very significant and well skilled lending team who support our

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Speaker 3: customers directly and that, as you said, has led to

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Speaker 3: us becoming almost fifty percent of what we call proprietary

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Speaker 3: or direct mortgages that are originated in Australia.

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Speaker 4: So with the economic outlook, we are expecting some kind

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Speaker 4: of interest rate carts. But more broadly, when we're watching

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Speaker 4: what's happening from Washington, how are you seeing the global

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Speaker 4: macro picture and how potential tariff shops could impact the economy.

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Speaker 3: Yeah, look, of course, like everyone we've been watching the

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Speaker 3: steady stream of news and updates over the last couple

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Speaker 3: of weeks. In particular, I think it's of course important

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Speaker 3: to try to look through the near term and some

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Speaker 3: of the noise that's associated with that. We're looking obviously

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Speaker 3: fundamentally at what we think the prospects are for the

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Speaker 3: Australian economy, which we remain optimistic certainly over the medium term.

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Speaker 3: We of course support customers from a very wide range

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Speaker 3: of industries, so trying to understand what the impacts might

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Speaker 3: be on them, at least at this stage. Whilst we're

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Speaker 3: following all of those developments closely, we haven't made any changes.

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Speaker 3: We don't anticipate making any changes, certainly in the near term,

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Speaker 3: but we have to recognize that there are a number

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Speaker 3: of assumptions within that we do think the outlook for

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Speaker 3: global economic growth is probably slightly weaker.

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Speaker 2: We need to be conscious.

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Speaker 3: Of how trade relations evolve, and of course the geopolitical

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Speaker 3: risks that are always present.

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Speaker 4: A lot of investors hold CBA for the divid end

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Speaker 4: and the highest ever first half divid and announced Matt,

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Speaker 4: what can investors expect looking I know you don't have

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Speaker 4: a crystal wall but looking forward to the second half

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Speaker 4: some more strong dividend returns.

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Speaker 3: Well, we're very conscious, as you said, that our shareholders,

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Speaker 3: which are predominantly domestic and Australian based, either directly or

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Speaker 3: through their superannuation fund, the dividend an important part of

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Speaker 3: why you own the Commonwealth Bank, and of course access

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Speaker 3: to fully franked dividends. So look, we will please notwithstanding

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Speaker 3: the small increase in the profit, to be able to

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Speaker 3: declare a two dollars twenty five fully franked dividend, and

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Speaker 3: our policy would see us look to pay in the

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Speaker 3: midpoint of that seventy to eighty percent range. So obviously

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Speaker 3: it will depend on what our full year profit is,

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Speaker 3: but we of course think very carefully about any dividend

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Speaker 3: decisions to both support our shareholders in both the near

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Speaker 3: term as well as over the long term.

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Speaker 4: And shares today have hit yet another record. I mean, Matt,

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Speaker 4: not a day goes by I think where an analyst

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Speaker 4: doesn't tell me you're overvalued UBS again, saying we don't

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Speaker 4: see anything to justify the recent share price run. What

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Speaker 4: do you say to that when analysts are saying sell

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Speaker 4: CBA shares.

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Speaker 3: Well, I also recognize that the analysts have a job

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Speaker 3: to do. We don't track or watch the share price

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Speaker 3: on a day to day basis.

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Speaker 2: Of course, it's important for our owners and.

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Speaker 3: As you said, both the price of shares but also what.

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Speaker 2: The dividend is.

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Speaker 3: But there's a number of elements within that which is

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Speaker 3: more difficult to control. I think it's important as a

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Speaker 3: management team for the Commonwealth Bank to be focusing on

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Speaker 3: what we can control, which is of course trying to

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Speaker 3: do a great job serving our customers, allocating capital or

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Speaker 3: loans efficiently to both our customers and to support broader

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Speaker 3: economic growth and financial stability.

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Speaker 2: You've still got.

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Speaker 4: About seven hundred million of the one billion dollar buyback

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Speaker 4: program that was announced. Where are you sitting with your

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Speaker 4: CET one ratio and how do you expect that to

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Speaker 4: be affected?

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Speaker 3: Yeah, we're well above regulatory minimums the common equity tier

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Speaker 3: one of twelve point two.

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Speaker 2: We on top of the dividend.

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Speaker 3: As we covered that, we intend to neutralize the dividend

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Speaker 3: reinvestment plan, so effectively we go into the market and

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Speaker 3: buy back those shares. So obviously we have managed the

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Speaker 3: share count and try to reduce the share count over time.

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Speaker 2: The way to do that is via buybacks. We also

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Speaker 2: think about.

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Speaker 3: It in the context of our capital can be allocated

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Speaker 3: to growth, and importantly, this is a very strong period

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Speaker 3: of lending growth, which consumes capital. We want to make

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Speaker 3: sure we're well provisioned for any economic deterioration and also

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Speaker 3: to keep investing in our business. But overall, yes, our

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Speaker 3: balance sheet and capital position gives us a lot of

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Speaker 3: flexibility to be able to be patient and also to

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Speaker 3: look for ways to most effectively allocate that capital and

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Speaker 3: deliver appropriate returns to our owners.

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Speaker 4: So a strong financial position. If there is an interest

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Speaker 4: rate cut next week, Matt, how quickly we'll CBA pass

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Speaker 4: that on well.

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Speaker 2: As you'd expect.

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Speaker 3: We don't pre announce the decisions that we're likely to

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Speaker 3: take in the future, but it's fair to say that

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Speaker 3: we recognize that Australian households have been looking forward to

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Speaker 3: some rate relief for some time, and we know that

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Speaker 3: that decision and the decisions to flow from that will

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Speaker 3: be very closely scrutinized and watched and watched.

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Speaker 1: That was Commonwealth Bank Chief Executive Matt Common speaking to

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Speaker 1: Juliet Sally on Osby's, Australia's leading provider of live and

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Speaker 1: on demand video of the latest news in Australian business markets, economy,

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Speaker 1: It's free. This is the Fear and Greed Daily Interview.

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Speaker 2: I'm John Elmer Joey Today.