Profile picture for user scott.schuberg
Posted By

Last week, Commonwealth Bank of Australia (CBA) posted a record net profit of over A$10b. This profit comes at a time when inflation and higher interest rates are eroding the fortunes of many Australians, including the Bank’s own customers. The media was quick to pick up on this juxtaposition, leading to a raft of negative articles that could have been mitigated with a more strategic communications approach. 

Like many, the Bank is enjoying favourable net interest margins, being the difference between interest earned on money lent versus the interest paid out to depositors. This dynamic is most prevalent during rate-hiking cycles, when banks will often pass on central bank rate hikes immediately to borrowers, while taking their time to reward depositors with higher rates on savings.

Across developed economies, this careful approach to celebrating corporate success will be carefully communicated by retail bank executives enjoying net interest margin windfalls. It warrants a quick analysis of CBA’s approach, linked to the current earnings season underway in Australia.

A chasm between the fortunes of Australian banks and their customers

According to its central bank, Australia is second only to Norway when it comes the prevalence of variable-rate mortgages, among advanced economies. Variable rate mortgages in Australia account for around 70% of all mortgages. This will only increase as short-term fixed products, which were locked in prior to the 2021 inflation resurgence, revert to variable rates.

Variable rate mortgages worldwide
The prevalence of fixed-rate mortgages in Australia
Common fixed-rate loan terms worldwide
The (very short) fixed terms typically taken up by Australian borrowers

This prevalence of variable rate mortgages fuels the speed of monetary policy ‘transmission’ (the speed in which rate hikes are felt by consumers through economic activity and inflation) in Australia, as rate hikes hit the hip pockets of borrowers more quickly than in most other economies.

Upon CBA’s earnings release, reporters immediately hit the streets to survey consumers about what they thought of record profits being announced while Australians felt the pain from inflation and higher costs of borrowing, which are savaging discretionary incomes.

The communications tightrope

The concept of a corporation’s ‘social licence to operate’ describes a company’s obligation to achieve buy-in from communities, in order to operate. While not new, the importance of this concept is evolving. As retail banks in Australia continue to promote community and financial wellbeing, there is a reasonable expectation that the delivery of financial results will be done so carefully during times of financial stress among their publics.

The immediate editorial bias was to highlight the disparity between strong earnings/executive pay and struggling consumers

Below is an analysis of the opening CEO/Chairman statements from CBA’s annual reports – from pre-GFC, to the final year of ex-CEO Ian Narev’s tenure, to now.

  • 2007: The 2007 financial year has been a successful one for the Commonwealth Bank (“the Group”). We have achieved a very strong financial result and made another record dividend payment to Shareholders. Your Board is focused on directing the Group to achieve superior long term Shareholder value. During the year the Group made good progress on many initiatives which, as further developed, will contribute significantly to our long term objective.
  • 2017: Commonwealth Bank has again delivered strong financial performance, guided by our vision to excel at securing and enhancing the financial wellbeing of customers, shareholders, our people, and the broader community.
  • 2023: Our strategy reflects a bolder ambition and our commitment to use the strength of CBA to support our customers, invest in our communities and provide strength and stability for the broader economy.

CBA’s second paragraph of its annual report read, “We recognise that many Australians are feeling under pressure in the current environment. As the nation’s largest bank, we will continue to help and support our customers. This includes helping them save on everyday expenses, navigate a changing economic environment and plan for the future.”

The company discussed governance, regulation and sustainability at length in its opener, relegating comment on its financial results to the penultimate paragraph.

We no longer live in a world where executives can cling to their constitutional right to serve shareholders above all others, and the amplification of opinions via social media and the associated consequences perhaps mean serving the public as well as shareholder interests are one and the same.

A test case for other banks

The delivery of, and response to, CBA’s financial results are an interesting case study to observe, as the central bank hiking cycles among many developed economies reach their terminal rates.

Investor relations and public relations aren’t mutually exclusive in a world so interconnected, with such intense mainstream and social media scrutiny. As such, we counsel a strategic approach to acknowledging commercial success, should these ‘chasms’ exist between your company and its publics.


Scott Schuberg is the Managing Director of Cognito's Sydney office