CBA Reports Lower 3Q Profit as Margins Weaken — Update

By Alice Uribe

SYDNEY--Commonwealth Bank of Australia posted a fall in third-quarter profit, reporting slightly lower margins as competition remains in the country's retail banking sector.

The bank, Australia's biggest by market value and the country's largest mortgage lender, reported an unaudited statutory net profit of 2.4 billion Australian dollars (US$1.58 billion) for the three months through March.

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$2.4 billion. This was down 3% on the quarterly average of the first half of the 2024 fiscal year, and down 5% on the same quarter a year ago.

CBA reported that net interest income was 1% lower in the quarter and net interest margins--the difference between the interest income generated and the amount of interest paid out to lenders--were slightly lower. It said this was driven by continued competitive pressures and customers switching to higher yielding deposits.

Still, CBA said there was improved momentum in growing home lending and household deposits in the third quarter. In its retail bank, CBA added around 143,000 transaction accounts in the quarter, while home loans grew by A$4.2 billion at 0.7 times the wider system as wholesale funding costs moderated. Business lending volumes grew above system at 1.1 times for the quarter.

At the same time, CBA said home loan arrears rose during the third quarter to 0.61%, up 9 basis points, as higher interest rates bit. Credit card arrears rose 8 basis points and personal loans ticked up 20 basis points during the quarter.

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

Operating income was down 1% in the quarter, while operating expenses rose by 2% partly due to higher staff costs. CBA reported a loan impairment expense of A$191 million, with collective and individual provisions slightly higher.

Matt Comyn, CBA's chief executive said the lender had completed over 90% of its funding task for fiscal 2024, having raised A$20 billion of long-term wholesale funding.

"We have continued to strengthen our balance sheet to ensure we remain well positioned to support our customers, communities and the economy," he said, adding that the fundamentals of the Australian economy remain sound.

On capital, CBA reported a common equity tier 1 (level 2) ratio of 11.9%, well above the regulators minimum regulatory requirement of 10.25%. CBA cited a A$7.7 billion surplus to the minimum requirement.

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

(END) Dow Jones Newswires

May 08, 2024 19:04 ET (23:04 GMT)

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