Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

Australia's CBA posts 11% profit jump but warns of housing headwinds

Stock Markets Aug 09, 2022 11:05PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A Commonwealth Bank of Australia logo adorns the wall of a branch in Sydney, Australia, May 8, 2017. REUTERS/David Gray
 
NABZY
+1.93%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Byron Kaye and Shashwat Awasthi

SYDNEY (Reuters) -Commonwealth Bank of Australia rode the end of a pandemic-powered property boom to its best annual profit in four years, but warned that spiralling cost-of-living pressures had started to hit consumer confidence.

The country's biggest lender which extends a quarter of Australian home loans posted an 11% surge in cash profit to A$9.6 billion ($6.7 billion) for the year to June as property prices soared. However, its mortgage book grew slightly slower than the overall mortgage market.

Profits were also helped by an unwinding of loan impairment provisions worth A$357 million. Banks had set aside provisions since 2020 to prepare for economic shocks caused by COVID-19 disruptions. Cash profit, which excludes some one-off items, is the preferred performance metric of Australian banks.

The result shows the inflexion point facing the sector: after more than a decade benefiting from runaway property prices fuelled by declining interest rates, aggressive rate hikes since May to curb inflation have turned the market, leaving lenders to chase growth from thinner sales volumes.

"Inflation is high and continues to rise and as a result we've seen a rapid increase in the cash rate, leading to heightened uncertainty," CEO Matt Comyn said on an analyst call.

Many borrowers on ultra-low fixed-rate mortgages were approaching the end of their loan term and they faced sharp increases in monthly repayments when it came time to refinance at current market rates, he added.

The bank's troublesome and impaired loans fell to A$6.4 billion from A$7.5 billion a year earlier, but Comyn said the effects of the rate hikes "have not fully been felt".

CBA had been surprised by the intensity of pricing competition as interest rates rose, and some lenders appeared to be writing loans "below cost of capital", he said but added: "It doesn't tend to remain the case for a persistent period of time".

The bank's net interest margin, a closely watched metric which shows lending income minus cost, shrank 18 basis points to 1.9%, although Comyn expected it to widen again as rate hikes continued.

CBA shares fell 0.7% by midsession, against a flat market. Some investors questioned whether the bank's dominant exposure to the housing market could become a vulnerability.

"Pressures on the CBA's earnings, and the earnings of the big banks more generally, will increase as economic activity slows with higher interest rates and as fewer home loans are written," said Russel Chesler, head of investments and capital markets at VanEck, a manager of exchange-traded funds.

CBA declared a final dividend of A$2.10 per share, compared with A$2.00 last year.

($1 = 1.4388 Australian dollars)

Australia's CBA posts 11% profit jump but warns of housing headwinds
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email