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CBA Says Worst May Be Over For Retailers

Commonwealth Bank (CBA) has said hotels, retailers, and restaurants might be under pressure a bit longer, especially with restricted discretionary spending to continue, but retail has potentially reached a turning point.

“I think a lot of the pain has already been felt,” CBA business lending unit leader Michael Vacy-Lyle said.

“We may be through the worst of it. Covid would have shaken out a lot of the smaller worst performers already. So I don’t expect it to get much worse from here.”

He points to certain segments, which he believes will continue to slash pricing, such as footwear and clothing, and a soft commercial real estate property outlook may carry on.

The most recent inflation data was released and was also a bright spot, showing lower petrol prices, reduced airfares, and cheaper meat, which all supported a decline in the consumer price index to 4.9% for 2023 until October, better than last month’s 5.6%.

However, core inflation dropped slightly to 5.3% in 2023 until October, down from 5.4%, but experts commented that the danger of a further rate increase could still be coming.

During this period, CBA’s market share has been slipping in retail lending recently, but has worked on seizing a bigger slice of the small and medium-sized business market.

“It’s not a one size fits all when it comes to business banking, which I think is very important and that’s why you need a diverse portfolio,” Vacy-Lyle said.

“Agriculture, which is a big part of our portfolio, remains robust. Notwithstanding the fact that there’s been a bit of softening in meat prices, we think that agriculture will be resilient and the commodity prices will be resilient.”

Also addressing vacancy rates of office buildings in metropolitan areas, Vacy-Lyle said B-grade and even A-grade office buildings continued to combat low vacancy.

“There are significant vacancies in Northern Sydney, Western Sydney, Parramatta (and) Melbourne CBD as an example,” he said.

“So office space will certainly be under pressure, however commercial property-industrial is doing incredibly well.”

Additionally, CBA is planning to capture a piece of the $49 billion real estate deposit pool with a new rental payments collection and management platform dubbed Smart Real Estate Payments, which should be launched by next year and is currently being piloted.

“We got about 26% share in real estate agents, but we are looking to grow that and to increase our deposit market share … and get a disproportionate share of that deposit pool,” Vacy-Lyle said.

Australia’s largest bank is also working in data analytics and will soon launch a children app, called “Kit”, which the company is positioning as a tool for kids to learn about money and interest.

“We’ve had many customers ask us about linking a CommBank saver account to a Kit account to help teach their children about interest,” Kit managing director Yish Koh said.

“I’m excited to announce we are working on doing just that, which means that kids within Kit will be able to see their savings grow as they do.”

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