Commonwealth Bank of Australia, the nation’s largest lender, posted a 2% rise in first half profit to a new record on higher fee income and cost controls. Still, the profit rise was the slowest since 2009 underscoring the challenges faced by Australian banks
Cash profit, which excludes one-off items, rose to $4.91 billion in six months ended December 31 from $4.81 billion a year earlier, the company said. That beat analysts expectation for $4.83 billion. The lender announced an interim dividend of $1.99 up a cent.
Australian banks are staring at slowing profit growth as lending growth drops and competition intensifies. They are cutting costs and relying on low interest rates to keep a lid on on sour loans to eke out increased profits.
The nation’s largest lenders are also facing a regulatory clampdown on mortgages to combat runaway housing prices and bracing themselves to meet demands to boost capital and liquidity. The CBA on announced it was increasing interest rates on investor interest-only mortgages by 12 basis points.
“We have invested carefully but consistently over many years, leading to ongoing revenue and balance sheet growth, and continuous innovation for our customers,” CEO Ian Narev said. “At the same time, our emphasis on productivity has ensured that expense growth is fit for the times.”
The CBA said net interest margins, a key measure of lending profitability, fell 4 basis points to 2.11%. Provisions for bad and doubtful debts rose 6% from a year earlier to $599 million, it said. Productivity measures delivered lower expenses, with the Group’s cost-to-income ratio falling 60 basis points to 41.5% on an underlying basis.
Retail banking unit posted a 9% profit increase and its institutional bank delivered a 10% gain. The CBA’s wealth management unit saw earnings slide 34%.
Total customer deposits increased 8% to $541 billion, and contributed 66% of total Group funding. The bank’s common equity tier 1 capital ratio, a measure of its ability to meet future losses, stood at 9.9%. Capital generated by earnings was offset primarily by the regulator’s requirement to hold an additional 80 basis points of capital for Australian residential mortgages and the 2016 full year dividend, it said.
Personal loan arrears were seasonally lower, although still elevated in Western Australia. and home loandefaults continue at low levels, despite higher arrears in Western Australia, the lender said.
“The combination of geopolitical volatility and weak economic recovery in parts of the world means the risk of market volatility, and indeed economic shock, remains heightened,” CEO Narev said. “At the same time, recent trends in the Australian economy are more positive.”
CBA’s earnings follow that of rival National Australia Bank, which posted a 1% drop in quarterly profit. ANZ Bank reports its first quarter numbers Friday. Westpac doesn’t provide one.