John Durie: CBA sets sights on business sector as it battles with NAB for market share

When CBA boss Matt Comyn talked up the growing strength of his business banking franchise this week everyone said he was gunning for NAB’s small business franchise.

That might be true, but the fact is CBA business banking boss Mike Vacy-Lyle had bigger fish in mind, even after he boosted divisional cash profits by 6% to $3 billion.

The good news for potential customers is the game is well and truly on, which means in a market where interest rates are increasing the banks may be prepared to cut deals to win your business.

CBA has a balance sheet totalling some $1.2 trillion and a loan book of $880 billion, meaning Vacy-Lyle will have to make real inroads to shift the dial.

Competitors say the bragging is a question of definitions and a small business loan is more like one up to $30 million, while the CBA playground is more in the $50 to $300 million zone.

At that end you get more bang for your dollar and you need less loans to shift the dial.

You also take on more risk because borrowers at this level are not going to pledge their house to provide security, so with higher returns comes higher risks.

NAB is yet to report full year numbers but based on its half year returns it can still claim clear leadership in the SME market.

Comyn too can clearly spruik some impressive returns with business ending market share up from 15.6 to 15.8%.

The big end of town get to talk to institutional bankers. 

The CBA boss also said business loans were growing at 1.3 times system or 14% for the year, which is better than his prized home loan book which grew at 0.9 times system .

CBA said it was the main financial institution for 22% of customers and transaction accounts now top 1 million.

Competitors who declined to be named say CBA is aggressively taking share in the $50 to $3000 million market with loans deals offering big savings to their customers.

In part it does this because it can, but it is also a strategy which carries some risk.

Banking battle

CBA is also using its digital strength in an attempt to win market share, including its new Smart Health terminals aimed at doctors and dentists to give them easy to use access to the main health insurers.

That is a market long dominated by NAB with its HiCAPS terminals. These are in the process of being upgraded through the recent purchase of Lantern Pay, which will give expanded coverage and access.

CBA’s Smart point of sale terminals are another leg to its charge along with its BizExpress loans which guarantee credit within 12 minutes.

There is another definitional issue in the battle — CBA’s claimed net promoter score performance in business banking puts it ahead of the pack.

Given the state NPS score is negative 3.2 that is not a great claim because a negative score means more people will tell their friends to go elsewhere.

A positive NPS score says more people will recommend you but the banks are so used to having big negative scores they boast when their score is less negative.

 CBA is the market leader in banking thanks to its home loan strength which accounts for 70% of profits.

It is without doubt a well run machine.

But if the battle is between CBA and NAB in business, that means ANZ and Westpac are caught in the cross fire along with the smaller players.

While all banks suffered share price falls over the last 12 months CBA’s financial strength is reflected in return on equity at 12.7%, up from 10.2% two years ago.

The financial markets are more worried about what will happen in the next two years as the economy weakens in the wake of more interest rate hikes but Comyn played these concerns down as best he could.

The good news for small business borrowers is the banks are after their business with more than mere bragging rights at stake.