Commonwealth Bank of Australia First-Quarter Earnings Report

By Roushni Nair

(Reuters) – The Commonwealth Bank of Australia's (CBA) first-quarter cash earnings have exceeded market expectations, driven by improved volumes in home lending and household deposits, along with buoyant margins in a high-interest rate environment.

Despite facing deposit price competition and preparing to repay a significant loan from the Reserve Bank of Australia later this year, CBA's retail division experienced growth, adding 121,000 transaction accounts and increasing home loans by A$8.6 billion.

CBA, which controls a quarter of Australia’s A$2.2 trillion mortgage market, reported a common equity tier 1 ratio of 11.8% as of the end of September.

CBA acknowledged that Australia's economic growth remains sluggish due to the highest interest rate in 12 years at 4.35%, which continues to impact consumer spending. CEO Matt Comyn stated, "Inflation is moderating, but at a slowing pace, and global geopolitical tensions are creating uncertainty … we remain optimistic on the overall outlook. The Australian economy remains fundamentally sound."

Although high interest rates have benefited Australian banks financially, they are also engaged in a price war, which has forced lenders to sacrifice market share or profit margins to maintain viability.

For the quarter ending September 30, CBA reported a cash net profit after tax of A$2.50 billion ($1.63 billion), unchanged from the previous year and slightly above the Visible Alpha consensus estimate of A$2.48 billion, according to Citi.

Costs increased by 3% during the quarter, primarily due to higher wages, greater spending on improvements, and an extra day in the quarter, as noted by CBA.

The bank set aside A$160 million for potential loan losses, with a minor increase in total provisions. The rate of late payments on home loans remained stable, while there was a small seasonal improvement in overdue unsecured consumer loans; nevertheless, problematic and non-performing loans saw a slight rise.

($1 = 1.5307 Australian dollars)