Commonwealth Bank of Australia (CBA) has reported a quarterly profit despite its mortgage books and deposits being squeezed by competition and high interest rates.
Australia’s largest bank’s unaudited cash profit of $2.5 billion was flat compared to last quarter’s average and up 1% year-on-year.
The group’s year-on-year volume growth was driven by an 11% increase in business lending, a 5.7% rise in household deposits and a 3.1% lift in home lending.
However, CBA’s overall domestic mortgage balances decreased by $4.5 billion in the quarter.
The bank said this was “a consequence of our focus on increasing our share of Australian home loan revenue”, reflecting ongoing competition and a “disciplined approach to managing margins”.
CBA also said it has focused on its direct channel, with new proprietary home loan findings in the quarter “broadly flat” while lower margin new broker fundings declined by $5 million over the same period.
Operating expenses were up 3% compared to the 2H23 quarterly average. According to CBA, this was due to higher staff costs from wage inflation, partly offset by productivity initiatives.
The overall operating performance, which is the difference between operating income and costs, increased 2% on the prior corresponding period and was flat versus the 2H23 quarterly average.
CBA CEO Matt Comyn (pictured above) said the quarterly result underscored the group’s balance sheet strength that allows CBA to support its customers through the current challenging times while providing strength and stability for the broader Australian economy.
“We are very conscious that many Australians are feeling under pressure in the current environment. While some remain well positioned, we recognise that others are finding the higher cost of living very tough,” said Comyn.
While consumer arrears remain at historically low levels overall, home loan arrears increased modestly during the quarter up two basis points to 0.49%.
This reflects the balance between rising rates and a strong labour market that borrowers are experiencing.
Quarterly credit card arrears (up nine basis points) grew with elevated arrears observed in low-income individuals while personal loans (down four basis points) decreased in line with seasonal trends.
“Our customers are continuing to take practical steps to navigate through and we are here to help them,” said Comyn.
“As a result, we have seen a modest increase in consumer arrears over recent months. Our balance sheet strength means we are well positioned to support those customers who need it.”
From a balance sheet perspective, CBA remains 75% deposit funded, with long-term and short-term wholesale funding representing 17% and 8% of total funding respectively.
While deposits were up year-on-year for business deposits (2%) and household deposits (5.7%), deposits actually decreased over the quarter.
Considering CBA’s funding through deposits is well above the industry average (around 66%), a decrease in deposits could adversely affect its credit position in the future.
The group has repaid $19 billion of the Reserve Bank of Australia’s Term Funding Facility (TFF) put in place to support the economy during the Covid-19 pandemic and has issued $17 billion in new long-term wholesale funding this financial year - approximately 50% of CBA’s FY24 requirements.
CBA also retained a strong capital position during the quarter with a CET1 (Level 2) ratio of 11.8% at 30 September 2023, well above APRA’s minimum regulatory requirement of 10.25%. That equates to $7.3 billion in surplus capital.
The capital ratio increased by 46 basis points in the quarter before allowing for the impact of paying the $4 billion second half FY23 dividend to approximately 860,000 shareholders.
The group also completed the purchase of more than $700 million of shares on-market to neutralise the impact of the second half FY23 dividend reinvestment plan and has started the $1 billion on-market share buy-back, announced with the FY23 results on 9 August 2023. This will be completed subject to market conditions and other considerations.
Commenting on the broader economic indicators, Comyn said CBA remained optimistic about Australia’s medium-term prospects.
“The Australian economy remains resilient, supported by low unemployment and strong population growth,” he said.
“Higher interest rates are resulting in slowing growth and consumer spending, with pressure on some households and businesses. Our balance sheet strength combined with our strong organic capital generation allows us to support our customers through challenging times.”
“Strong banks benefit all Australians, and we remain well positioned to continue to support our customers, invest in our communities and provide strength and stability for the broader Australian economy.”
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