Commonwealth Bank has reported a record half-year cash profit of $5.15bn, up 9%, after profiting from a series of rapid-fire interest rate rises that have inflated its profit margins.
Australia’s biggest bank also lifted its dividend rate sharply, and will increase the size of its share buyback in moves likely to be greeted favourably by shareholders.
CBA’s result sets the scene for a bumper reporting period for Australia’s big banks, which have increased lending rates at a faster pace than their deposits, their primary source of funding.
The Reserve Bank of Australia has increased the official cash rate at nine consecutive meetings since May last year in a bid to tame inflation, with further rises expected.
CBA’s net interest margin, a barometer of profitability, increased by 18 basis points to 2.1%, underpinning the record profit.
The CBA chief executive, Matt Comyn, said on Wednesday that consumer spending remained resilient despite inflationary pressures.
“We are conscious that many Australian households are feeling significant strain from rising interest rates, alongside the rising costs of electricity, groceries and other household items,” Comyn said.
“Despite this, consumer spend remains resilient, with signs of spend slowing in pockets. The fundamentals of the economy remain solid, with low unemployment, strong exports, and returning migration.”
He said that while global growth should slow in 2023, “we remain optimistic that a soft landing for the Australian economy can be achieved”.
CBA noted it was facing increased competition which offset some of the improvement to its profit margins. If competition for deposit accounts rises markedly, major banks will need to raise their own rates to entice savers, reducing their margins.
Customer deposits currently account for about 75% of CBA’s funding needs.
CBA shares dropped by more than 3% in early trading on Wednesday, reducing some of the strong gains it has recorded this year which have taken its share price close to an all-time high.
Australia’s biggest lender will also pay a fully franked interim dividend of $2.10 per share, an increase of 20% from a year ago.
“Higher interim cash profits were a result of volume growth and the recovery in our margins as cash rates rise from historic lows,” Comyn said.
About one-third of CBA’s mortgage customers are still enjoying fixed rates set well before the official cash rate moved quickly to its current rate of 3.35%. Most of those customers will face a steep rise in repayments when their fixed loans roll off later in 2023 and in 2024.
Operating expenses increased to $5.8bn due to staff and technology spending, while CBA also increased provisions for bad loans by $586m.