Commonwealth Bank of Australia Posts 3Q Net Profit of A$2.6 Billion — Update

By Alice Uribe

SYDNEY--Commonwealth Bank of Australia posted a rise in third-quarter profit, driven by strength in its retail bank, amid intense competition in the mortgage market.

The bank, Australia's biggest by market value and the country's largest mortgage lender, reported an unaudited statutory net profit of 2.6 billion Australian dollars (US$1.76 billion) for the January-March quarter.

It was up 1% on the quarterly average for the first half of the 2023 fiscal year, and 10% higher than the corresponding quarter.

Cash earnings--the measure followed by analysts that strips out items including hedging volatility and losses or gains on acquisitions and asset sales--totaled A$2.6 billion.

For the third quarter, net interest income was 2% lower, which CBA attributed to volume growth that was offset by lower net interest margins, primarily from continued competitive pressure in home-loan pricing and customers switching to higher yielding deposits.

"Competition for home loans has remained intense in Australia and New Zealand," said CBA.

Still, the lender said it saw volume growth across its core products.

For the retail bank, 463,000 new retail transaction accounts were opened in the third quarter, up 33% on the prior three months. Home loans grew A$6.9 billion, at 1.0x system for the 12 months to March 2023, but CBA said it was focused on retaining existing customers. Household deposits also grew A$6.2 billion in the third quarter.

CBA, like other lenders, has benefited from the rising interest rate environment. The Reserve Bank of Australia this month surprised financial markets, raising its official cash rate by 25 basis points to 3.85%, resuming an aggressive campaign of increases after pausing in April.

But some analysts believe mortgage competition, particularly in refinancing, could crimp future margins and earnings. At the same time, banks may also see pressure on credit quality, as customers grapple with higher mortgage repayments, and inflation-related cost squeezes.

Chief Executive Matt Comyn said many of CBA's customers were feeling the strain of higher interest rates and the rising cost of living.

"As higher interest rates impact the Australian economy in the period ahead, we expect economic growth to continue to moderate," he said. "Despite the challenging global economic outlook, Australia is relatively well positioned given the strength of our banking system, the economic tailwinds from a recovery in population growth and relatively high commodity prices."

Still, for the third quarter, CBA said home loan arrears remained low at 0.44% reflecting low levels of unemployment and stability in savings buffers.

The lender recorded a third-quarter loan impairment expense of A$223 million, with collective and individual provisions slightly higher.

"Portfolio credit quality remained sound, with credit provisions increasing slightly to further strengthen our balance sheet position as financial conditions continue to tighten," said CBA.

CBA reported a common equity tier 1 (level 2) ratio of 12.1%, which it said was well above the regulator's minimum regulatory requirement of 10.25%.

Write to Alice Uribe at alice.uribe@wsj.com

(END) Dow Jones Newswires

May 08, 2023 18:30 ET (22:30 GMT)

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