CBA result highlights economy’s resilience as first-quarter profits climb

CBA boss Matt Comyn says the upcoming June quarter is when more signs of economic stress will emerge, revealing how aggressive rate hikes are hitting households.

Commonwealth Bank chief Matt Comyn says the upcoming June quarter will see more signs of stress emerging in the economy, providing a key reading of how aggressive rate tightening is hitting households and businesses.

CBA’s first-quarter trading update on Tuesday showed loan quality remained sound at the nation’s biggest bank, but Mr Comyn highlighted a lag as seven Reserve Bank rate hikes filter through the economy.

“We do think there’ll be some more pressure being felt across the economy probably toward the end of our financial year, and that last quarter I think we’ll get a better indication overall,” he told The Australian.

“Less than half of the increases in the cash rate are currently being … felt by households. That’s a combination of fixed rates as well as delay.”

Mr Comyn said markets would be watching this week’s wage data closely as business and consumer confidence measures slumped and other leading indicators such as job advertisements had softened for several months.

The big four bank chief executives and Macquarie Group’s boss Shemara Wikramanayake are among 20 attendees at Treasurer Jim Chalmers’ investor roundtable next week, convened to discuss housing investment and supply and the economy’s prospects.

“Notwithstanding the pressures that will be felt, Australia is in a much better position than many other countries around the world,” Mr Comyn said. “There is a path that can be navigated.”

Commonwealth Bank says the economy is showing resilience amid cost of living pressures and rate hikes. Picture: James Gourley/NCA NewsWire

Currently, however, the economy was showing resilience, Mr Comyn added as CBA reported a higher first-quarter profit.

Unaudited cash net profit rose 13.6 per cent to $2.5bn in three months ended September 30, compared to the same period a year earlier. The bank said cash profit was 2 per cent up on the quarterly average of profits in its second half ending June 30.

Unaudited statutory net profit was $2.7bn for the quarter, up from $2.3bn a year earlier.

CBA’s operating income climbed 10 per cent in the quarter, versus last year, buoyed by “higher margins” as home and business lending grew. But the bank did not disclose its net interest margin, a profitability measure that gauges what it earns on loans less funding costs, for the first quarter of fiscal 2023.

CBA’s shares rallied 1.3 per cent to close at $106.48 on Tuesday, the stock’s highest finish since June 1.

While UBS analyst John Storey retained his “neutral” rating and, he was upbeat on the bank’s quarterly update.

“CBA has delivered best in class and stronger than expected NII (net interest income) growth of 14 per cent quarter on quarter to $5.6bn, and very strong net interest margin expansion (>25 bps estimated) reflecting the value of their retail deposit franchise,” he said. “Costs (were) slightly higher than expected.”

JPMorgan analyst Andrew Triggs said: “Given we already sit ahead of consensus for first-half 2023 revenues, and with further benefits from recent rate hikes still to flow through, we see upside risk to consensus estimates on net interest income.”

Mr Comyn said the bank “remained disciplined” in a competitive environment and posted solid lending growth.

CBA’s loan loss rate edged up to 10 bps, from 5 bps in the same quarter last year, but total troublesome and impaired assets fell. Total credit provisions stood at $5.4bn as at September 30, up slightly on the prior three months.

In the three months ended September 30, CBA’s home lending rose by $5.1bn, business lending by $1.6bn and household deposits grew by $7.9bn. CBA’s deposit and mortgage growth was below the industry’s growth rate, but the bank’s business lending growth exceeded the sector’s rate.

Non-interest income fell, in part due to lower insurance income after flooding, and lower profits from Chinese bank investments.

Operating expenses, excluding remediation, were about 4.5 per cent up compared to the quarterly average of the bank’s second half, as factors including higher staff costs and “seasonally lower annual leave usage” fed through. Operating expenses, excluding remediation, increased 3 per cent on the same quarter last year.

CBA’s common equity tier one capital ratio was 11.1 per cent as at September 30. The bank said excluding the payment of the final dividend, its CET1 ratio rose by 31 basis points, as capital was generated from earnings, it completed a general insurance divestment and the prudential regulator removed a requirement that had forced it to hold $500m in additional capital.

CBA has completed about $1.5bn of a $2bn on-market share buyback announced this year, and expects to finalise the remaining portion by the end of calendar 2022, subject to market and other conditions.

The big four banks reported bumper results for 2022 with combined cash profits printing at $28.5bn, the highest level in four years. CBA’s major rivals have a September 30 year-end.