CBA broker decline “a positive sign”, says UBS

by Miklos Bolza14 Aug 2017
Lower numbers of broker originated loans at the Commonwealth Bank of Australia (CBA) is a “positive sign,” according to analysts from international bank UBS.

In a recent analysts note, Jonathan Mott and Rachel Bentvelzen said that CBA’s increasing reliance on brokers was one of UBS’ “long running concerns”.

“CBA had seen its use of mortgage brokers rise from 31% in 2H12 to a peak of 50% in 2H16. While this was in line with industry trends, we saw this as disappointing given CBA's large customer base, strong distribution network and customer analytics,” they wrote.

“In particular, CBA's proprietary sales had broadly been flat during this entire period, with all its sales growth coming via the broker channel.”

However, these trends changed during the past two halves with the bank’s use of brokers falling from 50% in 2H16 to 43% in 2H17. This corresponded to a fall in the absolute dollar value of sales through brokers, Mott and Bentvelzen wrote, dropping from $25.5bn to $21.1bn in the same time period.

“We see this as a very important development for CBA,” they wrote. “Mortgage broker commissions have been spiralling upwards for many years and mortgage commissions are the one part of the financial services value chain that have (sic) not seen margin pressure.”

“We see this as a positive sign for two reasons: (1) It is an illustration that CBA can leverage its large customer base, distribution strength and analytics; (2) It places CBA in a strong position to negotiate materially lower mortgage broker commissions consistent with the ASIC & Sedgwick reviews.”

Following both these reviews, Mott and Bentvelzen predicted that banks in general would aim to negotiate materially lower broker commissions with an announcement coming “imminently”.

“Although old trail commissions will take some time to roll off, we see a reduction in excessive broker commissions as an area of upside for CBA and the broader banking industry,” they wrote.

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