CBA in $2.4bn quarter profit as home loans, business lending lift

Commonwealth Bank has posted a $2.4bn profit for the three months to the end of March. CBA boss Matt Comyn says he remains optimistic about the outlook.

CBA and its rivals last week increased interest rates on home lending products after the RBA increased the official cash rate for the first time in 10 years. Picture: Luis Enrique Ascui

The chief executive of Australia’s biggest bank has declared his confidence in the strength of the nation’s economy as inflation rises and unemployment sits at a 50-year low.

“There is real strength in the underlying economy,” Commonwealth Bank chief executive Matt Comyn told The Australian after posting a flat profit result for the three months to March. “We remain optimistic about the outlook.”

CBA has recorded a $2.4bn profit in the third quarter, in line with the previous quarter, as loan growth and non-interest income offset industry-wide margin pressures stemming from record-low interest rates.

CBA and its rivals last week increased interest rates on home lending products after the Reserve Bank increased the official cash rate for the first time in ten years, by 0.25 per cent.

The RBA hiked rates higher and earlier than the market had expected, also revealing a downwards revision to its unemployment rate forecasts, significant upwards revisions to its inflation forecasts and pointing to wage increases at larger firms.

The unexpected move triggered a rash of predictions that rates may rise to between 2.5 to 3 per cent by mid next year.

However, Mr Comyn believes the Australian market does not require such a sledge hammer approach to moderate inflation and predicts a lower cash rate increase to 1.6 per cent.

“It will occur in a more orderly fashion than the market is pricing in. Inflation will reduce faster than the market is pricing in. The Australian economy is more responsive than many other markets,” Mr Comyn said.

It’s possible a more moderate approach would suit CBA. The bank would see an extra $320m per 25bp on deposits, partially offset by an increased cost of funding, but while the margins increase the volume of home loans would likely decrease along with house prices.

Mr Comyn now expects house prices to come off at the “upper range” of the 5 to 10 per cent as a result of the recent rate hike and expectations of more to come.

CBA said home loans increased by $6.9bn in the third quarter and business lending lifted by $3bn in the same period. This equated to 1 and 1.5 times system respectively.

“Continued growth in household deposits, home loans, business lending and business deposits was a feature of the quarter,” Mr Comyn said in a statement.

Ord Minnett described the result as “steady” though it commented that a tier 1 capital ratio of just 11.1 per cent may mean it waits until it completes the sale of a 10 per cent shareholding in Bank of Hangzhou for $1.8bn before conducting a/its buyback.

UBS retained a neutral rating on the bank following third quarter trading update, noting that operating performance was tracking slightly below consensus forecast.

Morningstar predicts the bank’s net profit could rise up to 45 per cent from the FY 21 result to FY26 but still believes the bank is over valued compared with Westpac and ANZ.

“It’s a huge increase in profit but I still think it’s expensive,” said Morningstar’s Nathan Zia. “I like the company but it’s hard to get excited about the price.”

CBA shares rose slightly after the trading update, reaching $102.89 at noon today.

The bank conceded that customer service via its call centre had taken a hit recently, with staff providing harder to hire and retain.

“For us and a variety of businesses it’s been harder to hire,” Mr Comyn said. “The biggest factor at our call centres has been the volume of calls and the fact the calls are taking longer. It’s a tighter labour market. We are all feeling that and it’s putting pressure on wages.”

Indeed, the National Skills Commission data showed that online job ads jumped 8 per cent in April to a record high of 311,110. Job ads are at the highest level since the government began collecting data in 2006.

A majority of the phone calls related to enquiries around interest rate rises and the bank also saw an increase in calls from customers about fraud-related activities.

CBA said loan impairment expenses declined in the quarter by $48m, total credit provisions were also lower at $5.7bn, and troublesome and impaired assets were lower at $6.6bn.

CBA and its rivals last week increased interest rates on home lending products after the Reserve Bank increased the official cash rate for the first time in ten years.

The move came as cost of living pressures increased in Australia and CBA reported in a survey that Australian home buying intentions dropped 13 per cent in April from a year earlier. Household spending intentions also fell, by 3.8 per cent from a month earlier.

“The group continues to maintain a cautious approach to managing potential risks, including higher interest rates, inflationary pressures and supply chain disruptions,” Mr Comyn said.