Australia's Commonwealth Bank posts 11% jump in annual profit, topping

COMMONWEALTH Bank of Australia, the country's largest lender, posted an 11 per cent jump in profit but warned that steeper borrowing costs and inflation were hitting consumer demand.

The Sydney-based bank warned of a challenging outlook as the twin economic pressures worsened the cost-of-living burden when it reported full-year earnings on Wednesday (Aug 10). It posted a cash profit of A$9.6 billion (S$9.2 billion) for the year through June, which was slightly higher than analyst expectations.

"Against many measures, Australian households and businesses are in a strong position given low unemployment, low underemployment, and strong non-mining investment," chief executive officer Matt Comyn said in the statement. "However, inflation is high, and we have seen a rapid increase in the cash rate which is negatively impacting consumer confidence."

While Australia's largest lenders have all passed on the Reserve Bank's record series of interest rate hikes since May, they're yet to show a significant rise in problem loans even after years of intense competition in the mortgage market. However, with the country's debt-laden consumers now grappling with the fastest tightening cycle in a generation, sentiment has taken a cautious turn.

Commonwealth also reported an 18 basis point drop in the closely-watched net interest margin - which compares the bank's deposit rate and what it charges to lend - to 1.9 per cent, citing a big increase in low-yielding liquid assets and lower home loan margins. The bank still expects those margins to increase as interest rates continue to rise.

"What will be the most pleasing for the market is their fixed expenses went down," said Hugh Dive, chief investment officer at Atlas Funds Management in Sydney. "If your revenue is going up faster than your expenses because of the sheer volume of what a bank like this does, small percentage changes can result in quite large moves in profit."

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The improvement in expenses compares with Commonwealth's smaller peer National Australia Bank, which on Tuesday fell the most in 8 weeks after reporting higher costs.

The bank also boosted its dividend by 10 per cent on the prior year to A$3.85 per share, it said Wednesday.

Other Highlights

• Loan impairment expense fell by A$911 million to a benefit of A$357 million
• Common Equity Tier 1 (CET1) capital ratio fell 160 basis points to 11.5 per cent
• Operating expenses were down 1.5 per cent to A$11.2 billion BLOOMBERG