CBA rides high on Trump tariff chaos, but banks on stability of Australian earnings
Commonwealth Bank’s quarterly update revealed more troubled loans and flatlining profit, despite the resilience of the Australian economy.
Business
Don't miss out on the headlines from Business. Followed categories will be added to My News.
Commonwealth Bank is counting on a return of global economic stability to lift Australia’s economic fortunes, as the market’s largest lender rides out an increase in loan defaults.
CBA reported flat cash profit of $2.6bn for the March quarter against the three months to December 31, amid a rising tide of provisions from troubled consumer borrowers. The profit result was up 6 per cent on the same quarter last year.
Chief executive Matt Comyn said it was typical of the post-Christmas period, as many borrowers overstretched.
Underlining pressures in the economy, CBA revealed $223m in loan impairment expenses for the quarter. The bank noted its individual and collective provisions lifted slightly despite portfolio credit quality remaining sound.
Arrears across CBA’s consumer lending book were above their historic average, climbing to 1.51 per cent for CBA’s personal loan customers, while 0.7 per cent of credit card customers were 90 days behind on their repayments. Home loan arrears were tracking at 0.65 per cent.
But Mr Comyn said CBA still remained well below long term loan loss averages, and the latest deterioration was simply “consistent with a gradual tightening across the economy”.
The bank boss said the relaxation in interest rates will “help”, and Australia’s strong labour market was continuing to buttress the loan book.
Unemployment is tracking at 4.1 per cent, slightly higher than in 2023, but still well below pre-Covid-19 levels.
Mr Comyn said unemployment remained the biggest driver of loan losses.
“Into the start of this year, households continued to be under a lot of pressure from cost of living, but we expect that will improve over the course of the year as both inflation reduces and the effects of rate reductions flow through the economy,” he said.
He warned the macroeconomic uncertainty facing the world could slow Australia’s economy, too.
Australia remained an attractive place to live and work, with the benefit of continued support from government spending in cushioning the jobs market, as inflation moderates.
CBA grew its lending book over the quarter, revealing a 1 per cent lift in operating income.
Higher lending and trading volumes, amid market chaos caused by the US tariffs, drove the improvement, with net interest margins – reflecting profitability from lending – remaining stable.
Business lending lifted 9.1 per cent over the period, running almost 1.3 times ahead of broader system growth, a proxy for the wider banking market.
This was followed by home lending, up 4.1 per cent, leaving CBA trailing its competitors with 0.9 times system growth.
Household deposits were also 4.8 per cent higher over the period, at 0.8 times system growth.
Operating expenses rose 1 per cent.
Mr Comyn pointed to the nearly $3.8bn in dividends paid by CBA over the quarter to its shareholders as supporting the Australian economy: “Our deliberate and long-term conservative approach to key balance sheet settings enables us to support our customers, the economy and our shareholders through a range of macroeconomic scenarios,” he said.
The CBA earnings update comes in the wake of the latest reporting season from the banking majors, with NAB, Westpac, ANZ, and Macquarie all ruling off their earnings last week.
KPMG found the majors reported a combined $15.5bn in profits after tax, up 3.5 per cent on 2024 first half levels.
The banking sector is continuing to face protracted pressures from competition in the home lending and business loan markets.
UBS analyst John Storey noted CBA was banking the benefit of nearly 68 of new business coming through its internal proprietary channels in its retail arm.
He noted CBA was likely to deliver 5.2 per cent cash earnings over the 2025 financial year.
CBA shares were up 0.7 per cent to $167.29 on Wednesday afternoon, just off their record high of $169.75 on May 2.
More Coverage
Originally published as CBA rides high on Trump tariff chaos, but banks on stability of Australian earnings
Lithium shows signs of life as Core unveils plan to restart mothballed mine
Core Lithium says it plans to revive its mothballed operations near Darwin but JPMorgan still believes investors in the sector should take the money and run.
Mirvac seeks Japanese backers for $2bn Darling Harbour gem
Property developer Mirvac plans to add another Japanese company to its roster of backers on high-profile redevelopment of a prime Sydney harbour site.