CBA boss says rates to stay on hold after another profit drop

Commonwealth Bank chief executive Matt Comyn says interest rates are likely to stay on hold as the Australian economy remains resilient after the bank reported a second consecutive drop in profit in its latest trading update.

On Thursday, Comyn said while some businesses and households were under pressure, the Reserve Bank’s priority was to get inflation back within the target range. “I think it’s more likely that [interest rates] will be on hold in the near term,” he said. “The economy has been very resilient.”

CBA boss Matt Comyn announced a $2.4 billion net profit for the three months to March. Credit: Oscar Colman

Comyn said immigration was providing a tailwind for the economy and the bank, providing a source of customers for CBA, and supporting economic growth.

“I think strong migration over many decades has been a real positive economically and socially,” he said. “Obviously, there’s always a need to make sure that the infrastructure is keeping pace, but the increase in migration has certainly helped with some of the pockets of labour shortages.”

CBA on Thursday reported a 3 per cent fall in net profit compared to the first half of the year, pocketing $2.4 billion in the three months to March, and a 5 per cent drop in net profit compared to the same time last year.

Shares in CBA fell over 2 per cent to $117.25 a share in afternoon trading following the announcement.

The bank’s net interest margin – a measure of profitability comparing its funding costs with what it charges for loans – fell, with CBA blaming continued competitive pressures and customers switching to higher-yielding deposits.

Comyn said while margin pressures had stabilised in the most recent quarter the bank would continue to adopt a “dynamic” approach to growing its home loans.

“What we have seen in the past 12 months is more unsustainable pricing,” he said. “We’ve seen a slight improvement [in margins] in recent months. At times, we’ll be prepared to grow below system, and if we see opportunities to grow above system, of course, we will take those.”

The bank said its loan book growth was flat over the quarter, with operating expenses 2 per cent higher amid higher amortisation and staff costs. CBA grew business lending 7.3 per cent but growth in both household deposits and home lending were below the industry average at 5.6 per cent and 3.1 per cent, respectively.

Comyn said the bank had seen late repayments on personal loans tick up above the historical average and was ready to support customers who were feeling the pressure of a higher cost of living but that the Australian economy, more broadly, remained resilient.

“The fundamentals of the Australian economy remain sound,” he said. “Unemployment remains low, supported by business and government investment and elevated terms of trade. We recognise that all households are feeling the impact of higher inflation and higher rates.”

CBA said its loan impairment expense was $191 million as it raised provisions. However, the bank said credit quality remained sound with moderate increases in consumer arrears and corporate troublesome exposures.

Consumer 90-day-plus late repayments ticked up from 1.14 per cent in the December quarter to 1.34 per cent this quarter, nudging higher than the historic average of 1.25 per cent. Home loan and credit card arrears also increased but remained below their historical averages.

“We expect to see further increases in arrears in the months ahead, given continued pressure on real household disposable incomes,” he said.

UBS head of Australian bank research John Storey said CBA’s third quarter update showed it was tracking in line with consensus expectations on net interest income and ahead on pre-provision profit and cash earnings, with lower expenses and impairment releases.

“Despite a visible deterioration in asset quality metrics, we think the credit impairment charges today suggest some consensus upgrades are likely for cash earnings in the second half of 2024,” he said.

E&P Capital analyst Azib Khan said CBA’s asset quality seemed to be deteriorating in similar fashion to that of other major banks over the past week.

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