Home loans 'not that profitable' at present: Narev

Lending for home loans in Australia is not "particularly profitable", says Ian Narev, chief executive of Commonwealth Bank. He was speaking at the bank's presentation on strategy last week.

In response to a question from Brett le Mesurier, of Axiome Equities, on the trade-off between market share and return on equity, Narev said: "If we were at any point in time to steer into a trade-off which says, 'look we're going to need to sacrifice a little bit of short-term ROE in order to shore up market positions', we wouldn't exclude that opportunity.

"A lot of these questions are trade-offs we need to make in very fast moving, fast changing competitive markets, and we look at them, and have processes [to] look at them very regularly, and we are prepared at times to defend market shares even when it's not the most profitable thing to do.

"And, frankly, home loans are an example of that today. I mean, we have ceded a little bit of market share because we don't believe it's particularly profitable.

"We still need to be doing the right things by our customers, so we are, and there's a floor that we discuss about the level below which we're not willing for the market share to go.

"And to the extent that those settings require us to write some business, which is maybe diluted, we would be prepared to do that if we can see the long term value.

Asked a wider question about targets for return on equity, Narev said: "I don't agree that implicit in here is an expectation that we're going to be over 20. And I also don't think that there is an explicit expectation overseas that ROEs on banks need to be south of 15.

"We're still very much a domestic bank with long term growth opportunities outside Australia. And we're only ever going to out-perform in Australia by a certain amount, even if we execute to the absolute extent of our abilities."