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Commonwealth Bank's quarterly profit slides amid record-low interest rates
[BENGALURU] Commonwealth Bank of Australia said margin pressure from record-low interest rates would persist as the country's biggest bank reported a near 10 per cent drop in first-quarter cash profit on Tuesday.
Australia's major banks are grappling with a low interest rate environment after the Reserve Bank of Australia, in a bid to stimulate a sluggish economy, slashed rates this year. Further rate cuts have not been ruled out.
The central bank's move has helped revive the residential property market, but has hurt banks' margins as lower rates reduce the amount they can charge in excess of their own borrowing rates.
CBA said its net interest margin - the difference between what a bank pays to borrow money and what it charges customers for loans - had fallen from the June quarter.
Headwinds from a low interest rate environment will continue to impact margins, the bank said in a trading update.
In an effort to support margins, the "Big Four" banks had resisted government pressure to pass on the RBA's most recent rate cuts in full to customers.
Cash profit, a measure that excludes one-offs and non-cash accounting items, from continuing operations fell to A$2.26 billion (S$2.15 billion) for the three months ending in September, compared with A$2.50 billion reported a year earlier.
All of Australia's four major lenders, who were once the envy of banks around the world because of their consistent high profits and returns to shareholders, have reported a second consecutive year of lower returns.
Banks have also dealing with greater competition and pressure to meet new regulatory requirements for capital ratios.
CBA's common equity tier 1 ratio was 10.6 per cent at the end of September, slightly down from 10.7 per cent as at June 30 but just above 10.5 per cent core capital requirement from January.
Shares of CBA rose 1 per cent to A$80.85 in early morning trade.
The lender said impaired and other troublesome assets increased to A$8.12 billion, up from A$7.80 billion as of June.
Expenses related to loan impairments were A$299 million in the quarter.