Commonwealth Bank Profit Meets Estimates as Rates Climb

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(Bloomberg) — Commonwealth Bank of Australia’s profit rose as higher interest rates buttressed margins at the nation’s largest lender, which set aside more capital due to higher price pressures on consumers and falling home prices.

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Cash profit from continuing operations climbed to a record A$5.15 billion ($3.6 billion) in the six months ended Dec. 31, the Sydney-based bank said in a statement Wednesday. That was in line with the average estimate of A$5.17 billion in a Bloomberg survey of six analysts. The firm also lifted its dividend. 

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Banks are reaping the benefits of the unprecedented speed of Reserve Bank of Australia rate hikes, which propelled Commonwealth Bank shares to a record high this month. Still, with a slowing housing market and consumers feeling the pinch from elevated mortgage and energy prices, the bank is boosting its capital cushions, a sign of caution as headwinds for the economy grow.

“We are conscious that many Australian households are feeling significant strain from rising interest rates, alongside the rising costs of electricity, groceries and other household items,” Chief Executive Officer Matt Comyn said in the statement. “Despite this, consumer spend remains resilient, with signs of spend slowing in pockets. The fundamentals of the economy remain solid, with low unemployment, strong exports, and returning migration.”

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Commonwealth Bank shares are up about 10% over the past year, beating competitors.

“Higher interim cash profits were a result of volume growth and the recovery in our margins as cash rates rise from historic lows,” Comyn said. “The result was further supported by sound portfolio credit quality.” 

Comyn said the bank remained “well provisioned” as customers navigate the higher costs of living and elevated borrowing costs.

Inflation, Supply Chains 

The bank’s loan impairment expense of A$511 million for the six months saw a large jump, “reflecting ongoing inflationary pressures, supply chain disruptions, rising interest rates” and declines in house prices. The overall loan loss rate increased 13 basis points to 11 basis points. 

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Commonwealth Bank will pay a A$2.10 per share interim dividend and increased its on-market share buyback by A$1 billion. 

What Bloomberg Intelligence Says 

CBA’s profit this year might be lower than expected. An unexpected jump in 1H impairments offset big margin gains, which we think could persist. Costs could also be an issue after management cited rising salary inflation. — Matt Ingram, senior industry analyst at Bloomberg Intelligence. Read report here.  

—With assistance from Tim Smith.

(Adds details on loan impairments in eighth paragraph, Bloomberg Intelligence reaction in tenth.)