Commonwealth Bank cautious despite profit of nearly $10 billion
UPDATED | Australia’s biggest lender remains positive about the medium-term outlook after posting a robust increase in full-year profit and lifting dividends.
However, the Commonwealth Bank warns the rapid increase in interest rates is beginning to lead to heightened uncertainty.
The bank on Wednesday reported a better-than-expected cash profit of $9.59 billion for the year to June 30, an 11 per cent increase from the year earlier.
The result came on the back of strong home and business lending volumes and a reduction in provisions related to the COVID-19 pandemic.
CBA chief executive Matt Comyn attributed the result to disciplined operational and strategic execution and a focus on customer engagement.
While Australian households and businesses remain in a strong position, Comyn said CBA customers were feeling anxious about the economic outlook and consumer confidence had fallen below levels seen during the global financial crisis.
“We’re starting to see a reduction in spend across our debit and credit cards on a seasonally adjusted basis, with spending falling more acutely for interest-rate sensitive cohorts such as homebuyers,” he told an earnings call on Wednesday.
“By December, the impact of already announced rate rises on monthly cash flows for mortgage holders will be more than four times higher than what customers experienced in July. In addition, there are further impacts from rising energy and food prices which will flow through over the course of the year.”
Earlier this month, the Reserve Bank lifted the cash rate by another 50 basis points to 1.85 per cent – its highest level in more than six years – as it scrambles to control runaway inflation.
The major banks have all passed through the rate increases to customers in full, fuelling concerns of a slowdown in the economy and the housing market in particular.
“We remain optimistic that a path can be found to navigate through and we remain of the firm view that the medium-term outlook remains positive,” Comyn said.
Despite the uncertainty, CBA posted a 9 per cent jump in statutory profit to $9.67 billion.
It was boosted by a $911 million drop in its provisions for impaired loans to reflect an improvement in economic conditions since the pandemic, resulting in a net benefit of $357 million to its result.
Net interest income rose 1.0 per cent over the year as deposits and business lending grew at a rapid pace. However, the bank’s home lending expanded at lower than the industry average.
The lender’s net interest margin, or the cost of funding loans compared with what it charges for them, slid 18 basis points to 1.9 per cent largely due to the impact of fierce competition in the home loan market.
CBA shares slipped nearly one per cent after the results, and were trading 0.7 per cent lower at $100.62 at 1255 AEST.
The bank expects margins to improve as cash rate hikes from the Reserve Bank temper rampant inflation and rising rates boost profitability.
“Whilst the bank’s net interest margin fell, rising interest rates should drive its NIM higher over the next 12-18 months,” ratings agency Moody’s said in a note.
“Still, this benefit will be partly offset by a normalisation of credit costs and lower credit growth as Australia’s housing market continues to slow.”
CBA said annual operating expenses, excluding one-off items, fell 1.5 per cent as the bank paid out lower remediation costs and booked productivity benefits. This was partly offset by higher staff costs.
It reported a common equity tier one capital ratio was at 11.5 per cent at June 30, and the bank said it would be in a position to meet new regulatory requirements that start in January.
CBA will pay a fully franked final dividend of $2.10 per share, taking the full year payout to $3.85 a share.
CBA’S PROFIT BREAKDOWN
- Cash earnings up 11pct to $9.6b
- Net profit up 9pct to $9.67b
- Operating income up 1pct to $24.38b
- Fully-franked final dividend $2.10/sh vs $2/sh year ago.
– AAP