SYDNEY: Rising interest rates helped Commonwealth Bank of Australia (CBA) deliver record profits but shares of the lender dropped on headwinds facing its mortgage business and concerns that its margins have peaked.
Australia’s biggest lender pointed to tailwinds ahead as loan impairment expenses increased by A$586mil (US$409mil or RM1.8bil). Business credit growth also slowed, reflecting inflationary pressures, rising interest rates, supply chain disruptions and a decline in house prices.
“We expect business credit growth to moderate and global economic growth to slow during 2023,” said chief executive officer Matt Comyn.
“However, we remain optimistic that a soft landing for the Australian economy can be achieved.”
Shares in the bank were up as much as 5.7% in early trading in Sydney, while the broader market was down 0.2%.
“With further headwinds from deposit switching likely in the second-half of 2023, accelerating headwinds in the mortgage market, and a cash rate that is closer to the peak, we think concerns are likely to grow that net interest margins have peaked,” Citibank said in a note after the earnings announcement yesterday.
“Asset quality was strong in this result, but there is likely to be a perception that it will deteriorate from here as revenue tailwinds are starting to ease.”
After eight rate hikes through 2022 and a further quarter-basis point raise last week, the central bank has indicated more tightening ahead to stamp out inflation. Soaring rates have cooled off the housing market and added to rising cost of living pressures.
“We are conscious that many Australian households are feeling significant strain from rising interest rates, alongside the rising costs of electricity, groceries and other household items,” Comyn said. “Despite this, consumer spending remains resilient.”
Higher interest rates are still on the way for many CBA mortgage customers, as many low-interest fixed-rate loans are set to mature by the end of the year.
In an investor presentation pack, CBA said approximately 83% of the book is exposed to rate increases by December 2023.
CBA said cash profit from continuing operations climbed to A$5bil (RM15bil) in the six months ended Dec 31 from A$4.7bil (RM14.2bil) a year earlier, almost in line with a Visible Alpha consensus estimate.
It declared an interim dividend of A$2.10 (US$1.45 or RM6.39) per share.
The lender also said its “troublesome and impaired” assets fell by US$500mil (RM2.2bil) over the half to US$6.3bil (RM27.5bil).
Home lending volume growth slowed for the company, with gross lending coming in at A$77bil (RM233bil) during the first-half, down from A$94bil (RM284bil) a year earlier.
The bank also announced it would buy back additional shares worth A$1bil (RM3bil) on the back of the A$2bil (RM6bil) share buy-back announced last February.
While higher earnings on deposits drove up the net interest margin to 2% from 1.92% a year earlier, CBA said it was partly offset by increased competition. — Reuters