CBA on track to deliver record profits

admin | 杭州桑拿
4 Dec 2018

The Commonwealth Bank is heading towards a record profit. Photo: Rodger Cummins The Commonwealth Bank is heading towards a record profit. Photo: Rodger Cummins

The Commonwealth Bank is heading towards a record profit. Photo: Rodger Cummins

The Commonwealth Bank is heading towards a record profit. Photo: Rodger Cummins

The Commonwealth Bank is powering towards a record profit of $9.5 billion, as the resurgent mortgage market and falling bad debts drive earnings growth.

The country’s biggest bank on Wednesday said momentum had continued in the $1.3 trillion home loan market, despite fierce competition for customers squeezing interest margins.

Unaudited cash earnings swelled by about 10 per cent to $2.3 billion in the September quarter and charges for bad loans continued to decline as customers paid off debts ahead of schedule.

It suggests the CBA will break a new record for bank profits this year, eclipsing last year’s earnings of $8.68 billion.

If the growth trends persist, CBA is also on track to become Australia’s first non-miner to report a profit of more than $10 billion over the next two years.

BBY analyst Brett Le Mesurier said a full-year profit of about $9.5 billion could be on the cards for CBA, as lower interest rates helped to fire up the mortgage market. “They’re still getting growth,” he said.

Mr Le Mesurier noted that bad debts were still declining, albeit at a slower rate than previously, and it was possible the trend had further to run.

“We are nearing a low point, but quite possibly we are not at the lowest point,” he said.

CBA said that “overall business momentum was maintained,” highlighting the mortgage market, where “strong” new business was being balanced by borrowers paying down debt.

The bank said credit quality remained “sound” with impaired assets falling as households continued to exploit the low cost of credit and pay off their loans ahead of schedule.

Total expenses for impaired loans as a share of its lending book continued to decline in the quarter, to 0.13 per cent, compared with 0.16 per cent in the year to June.

However, the bank also pointed to the challenge from fierce competition in the $1.3 trillion mortgage market.

CBA said its net interest margin was “marginally lower” because of competitive pricing impacts, which had more than offset the benefit it received from lower wholesale funding costs.

In response to the hot competition, the Australian Prudential Regulation Authority is introducing new detailed guidelines laying out a prudent approach for home lenders. A final version of these was published on Wednesday.

APRA chairman Wayne Byres said housing loans were historically low risk but added: “However, for some time APRA has seen increasing evidence of residential mortgage lending with higher risk characteristics by Australian [authorised deposit-taking institutions].”

In contrast to the mortgage market, commercial lending growth has been relatively soft, CBA noted. Assets under management in its wealth management arm had risen by 3.5 per cent during the quarter.

The bank’s tier one capital ratio was down to 8.6 per cent, from 9.3 per cent, due to the payment of its final dividend.

It comes after full-year results from Westpac, NAB and ANZ have in the last week underlined the benign conditions in banking, as bad loans continue to decline.

Indeed, two-thirds of the industry’s 5 per cent rise in pre-tax profits came from lower provisions for bad debts.

Bank analysts question how much further the declining bad debt trend has to come, which may make it tougher for banks to sustain their recent rates of earnings growth.

The chief executive of the Australian arm of rival ANZ, Phil Chronican, acknowledged on Wednesday that it would be a challenge for ANZ to sustain profitability when unemployment and interest rates inevitably rise.

“The current bank profitability is very much driven by the fact that we’ve got very low levels of bad debt at the moment,” he said.

He said it was “inevitable” that unemployment and interest rates would one day rise and the bank was trying to prepare itself for when that happened.

CBA shares rose 1 per cent to $81.56 on Wednesday.

with Georgia Wilkins

Comments are closed.