Profits total $5.4 billion in first-half of year amid rising interest rates
Updated ,first published
Commonwealth Bank’s half-year results have sent market expectations skyrocketing and sparked a spirited rise in share prices, after the banking giant made a profit of $5.4bn and maintained its dominant position in local banking.
CBA, which suffered a rare underperformance in the share market last year, on Wednesday reported a 6 per cent increase in cash profits in the December half, rewarding shareholders with a higher-than-expected dividend.
The bank also reported fewer customers struggling to repay loans and said the economy was strengthening thanks to higher consumer spending and strong investments, including artificial intelligence and energy transition.
Investors applauded the CBA figures, sending the share price up as much as 8 per cent, as investors said the results eased fears about the threat of fierce competition in home loans and mortgages.
Omkar Joshi, chief investment officer of Opal Capital, said CBA shares are on the rise as investors take relief from the banking giant’s strong margins, better-than-expected earnings growth and lower bad debts.
Joshi said that large companies are rewarded by the market when they exceed expectations this reporting season, and are punished when they fail to meet expectations.
“Ultimately there was nothing at fault and CBA shares underperformed relative to the outcome,” he said.
Despite fierce competition from Macquarie, which has aggressively expanded into retail banking, CBA has maintained its market share in mortgage loans at over 25 percent, while its share in household deposits has risen to 26.6 percent. It also further increased its share of the profitable business banking market.
With Macquarie rapidly growing in household deposits, the main source of funding for banks, CBA chief executive Matt Comyn said he was watching rivals closely but strong deposit growth showed it could compete while delivering returns.
“In this particular period, I think this demonstrates our ability to compete very effectively, provide excellent service to our customers and provide a reasonable and sustainable return to our shareholders,” Comyn said.
The results come after the Reserve Bank raised interest rates for the first time in more than two years last week, but Comyn predicted a short rate hike cycle that would have a mild impact on property and mortgage markets.
Speaking to this imprint, Comyn said that the bank foresees another possible interest rate increase this year and acknowledged that this would be unwelcome news for borrowers in a difficult situation.
“We’ve seen one rate hike, we expect maybe another one, but we don’t think much more than that, and then I think there will be some pressure to get back into an easing cycle beyond that,” he said.
Comyn said the impact of higher interest rates on housing and home loans will be “mild” and the increase in loans and house prices this year will be around 5 percent.
He also said he was open to possible changes to the capital gains tax regime to support housing affordability, following reports that Chancellor of the Exchequer Jim Chalmers was considering cuts to capital gains concessions ahead of this year’s budget, but stressed that any such changes would need to be part of a wider package.
When asked about the possibility of changing the capital gains tax regime, Comyn acknowledged the importance of “intergenerational equity” and said it would be appropriate to look at the issue as part of a wider debate on taxation. He also highlighted the need for more housing supply and that the tax burden on working Australians was increasing over time.
“Even though I didn’t have any details, I could guess that: [changes to capital gains tax rules] “Looking very closely would be an appropriate precaution,” he said.
In a sign of its confidence in the outlook, CBA said it would increase its interim dividend by 4 percent to $2.35.
Despite ongoing cost of living pressure on many households, CBA said the share of mortgage customers behind on repayments had decreased during this period, thanks to lower interest rates. He said 87 percent of his customers received their scheduled repayments ahead of time.
The key focus for investors is the bank’s net interest margins, which compare funding costs to what the bank charges customers, with CBA reporting a lower margin of 2.04 per cent compared to the June half. It was stated that margins remained flat on a fundamental basis.
Across the banking sector, margins are under pressure due to stiff competition in home loans, where Macquarie is rapidly increasing its share.
Citi analyst Thomas Strong said CBA’s margin beat market expectations, while its $319 million bad debt charge was “much better than expected.” Strong said the profit result reflected the underlying health of the Australian economy, which boded well for the full year.
The banking giant’s operating costs increased by 5 percent; It was stated that this increase was due to high investment in technology, inflation and some new recruitments. CBA’s full-time headcount increased by 1 per cent over the six-month period, with the bank employing just over 51,600 people.
CBA is considered the technology leader among the big four banks and said its capex rose 10 percent in the half to $1.2 billion as it sought to strengthen its AI capabilities.
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Clancy Yeates is deputy business editor. He covered banking and financial services and was previously a national business correspondent in the Canberra bureau.Connect with: X or email.
