By Byron Kaye and Sameer Manekar
SYDNEY (Reuters) -Commonwealth Bank of Australia, the country’s largest lender, said on Wednesday its annual profit fell less than analysts feared due to lower bad debt provisions and raised its final dividend, sending shares higher.
The closely watched result cements CBA’s new status as Australia’s largest listed company after a one-third share price rally since late last year, adding to pressure to show it could gain the upper hand in a faltering economy.
Banks have historically benefited from rising interest rates, but have struggled to grow profits recently due to persistently high spending and a price war fueled by home loan borrowers looking for a better deal. CBA is the most exposed with a quarter of the A$2.2 trillion ($1.46 trillion) mortgage market.
“Households continue to respond to the higher prices, and I think it’s even more difficult than it was six months ago,” CEO Matt Comyn said of inflation in the broader economy on an analyst call. “There is more spending on essentials and cuts in discretionary spending.”
Profits for the Sydney-headquartered company fell 2% to A$9.84 billion in the year to end-June, beating the LSEG estimate of A$9.68 billion, while credit loss charges fell 28% up to A$802 million as a result of its ‘robust’ loan production processes, the bank said.
CBA increased its dividend to A$2.50 per share, up from A$2.40 a year earlier, taking the year’s payout to a record A$4.65.
Shares of CBA were up more than 1.2% by late afternoon, beating the broader index’s gain of 0.4%, as analysts prepared to upgrade their expectations for the A$224 billion market-cap provider that recently acquired mining company BHP overtook as the largest company in the country.
“We see potential for an upgrade to consensus cash earnings for FY25F and FY26F,” said Azib Khan, executive director at E&P Financial.
Net interest margin, a key measure of bank performance that compares interest rates on loans with interest paid to depositors, rose from the first half to the second half, a sign that a long-term margin deterioration was being reversed, Khan added.
Citi analysts said previous profit forecasts for the bank could be “too pessimistic.”
As Australian banks resorted to offering cash to sign up mortgage borrowers for refinancing with other lenders, CBA was the first to say it would stop the practice in 2023 to preserve margins. After a dip in market share, the bank said on Wednesday that it maintained its market share from December to June.
Although bad debt provisions fell, the bank said payments on home loans more than 90 days late stood at 0.65% of total mortgages at the end of June, up 13 basis points from December.
($1 = 1.5097 Australian dollars)
