Australia's Commonwealth Bank H1 profits up 2%

[SYDNEY] Australia's biggest company Commonwealth Bank on Wednesday posted a modest two per cent rise in first-half net profit to A$4.62 billion (S$4.56 billion) with the lender confident it is well placed to ride out global instability.

The report came a day after nervous investors dumped bank stocks in Australia ahead of the Commonwealth's interim results, with lenders also spooked by a global banking rout on fears of deteriorating credit quality.

The bank's result for the six months to December 31 was up from A$4.53 billion in the same period the previous year.

Cash profit, a measure often preferred by financial institutions, rose four percent to A$4.80 billion, slightly higher than analyst expectations.

The Commonwealth is the first of the country's big four banks to report its half-yearly earnings, helping investors judge their ability to withstand a slowdown in the Chinese economy and lower commodity prices.

Chief executive Ian Narev emphasised the bank's balance sheet strength in positioning the country's largest lender to handle economic instability.

"All our stakeholders rely on our stability, particularly when markets are volatile," he said.

"Our A$5.1 billion capital raising through an entitlement offer for all shareholders (last year) further bolstered our capital adequacy, and positions us even higher in the top quartile of banks internationally.

"Our liquidity, funding and provisioning positions are similarly strong." The bank raised A$5.1 billion in the second half of last year to meet tougher regulatory requirements.

New rules released by financial regulator, the Australian Prudential Regulation Authority, demanded the biggest banks hold more reserves as a buffer against mortgages - part of a global effort after the 2008 financial crisis.

With shareholder returns hit recently by rising bank funding costs and tougher capital rules, one focus ahead of the result was whether the Commonwealth would maintain its progressive dividend policy.

It declared a flat interim dividend at A$1.98.

The bank said its revenue fell four percent to A$21.9 billion, although operating income rose six per cent to A$12.36 billion.

Mr Narev said the solid result, driven by growth in mortgage and business lending, reflected the Australian economy's rocky transition away from a dependence on mining.

"These results show that through the latter part of 2015, the Australian economy continued its steady transition from a resource-dependent economy to a more diversified one," he said.

"The transition is still in its early stages. So global volatility concerns our customers, and presents challenges here in Australia.

"We must be cautious, but also remain focused on the long-term to ensure that Australia remains a great place to live and to invest."

AFP