The Commonwealth Bank of Australia (CBA) recorded a cash profit of $5 billion in its half year results, falling short of analyst expectations of $5.1 billion.
While the profit itself signifies a strong performance, concerns linger around the bank's outlook due to tightening consumer spending.
CBA CEO Matt Comyn (pictured above) said the lower cash profit reflected cost inflation and a “competitive operating environment”.
“Australian households continue to feel pressure in the current environment, with many cutting back to adjust,” Comyn said.
“Throughout the half, we have continued to support our customers and communities, invest for the future, and provide strength and stability for the broader economy.”
Faced with an aggressive interest rate rising cycle to curb rising inflation, 2023 was a difficult period for CBA and consumers alike.
Midway through the year, the bank suffered an unprecedented three-month decrease to its mortgage books.
CommBank’s owner-occupied loans were worst hit, losing over $4 billion in three months dropping from $366.2 billion in June to $362.1 billion by the end of September.
However, since September, CBA’s mortgage books rebounded strongly.
Overall, the bank’s home loan balances declined by $2 billion in the half to $650.5 billion but said it was taking a “disciplined approach to managing margins to deliver sustainable returns”.
Commonwealth Bank’s net interest margin (NIM), which sits at 1.99%, also suffered throughout the year, falling six basis points on the second half of 2023 and 11 basis points since the first half of last year.
CBA said the margin squeeze was “due to increased competition, unfavourable portfolio mix mainly from customers switching to higher yielding deposits, higher wholesale funding costs and a lower contribution from New Zealand”.
Resilience was an emphasis in the home loan section of CBA’s half-year results presentation.
CBA’s home loan book is generally structured with the vast majority (76%) on variable rate loans. However there is a significant portion (20%) still yet to roll off the lower fixed rate loans seen throughout the pandemic.
Commonwealth also made it a point to explain its policy tightening, with 88% of the book originated under tightened standards since FY16.
In FY23, CBA made some key serviceability changes, including:
There was also a modest uptick in arrears but overall, it remained low. This was mainly felt across borrowers susceptible to the impact of higher cost of living and interest rates such as young people and those on low income.
While 2023 was “increasingly challenging”, Comyn said CBA expects “financial strain to continue” into 2024 with an uptick in arrears and impairments.
“The economy has been fairly resilient, supported by a strong labour market, savings and repayment buffers, population growth and relatively high commodity prices,” Comyn said.
“However, downside risks are building as slowing demand and persistent inflation impact Australian businesses. Ongoing geopolitical tensions also create uncertainty.”
Comyn said the company remains well provisioned and capitalised, with capacity to navigate an uncertain economic environment.
“We will stay focused on our customers, offering personalised support and financial flexibility, and we will continue to invest in our franchise,” he said.
“We remain optimistic about the outlook for the Australian economy and we remain focused on executing our strategy to deliver on our purpose.”
