Commonwealth Bank reports $10bn in cash profit

Australia’s largest bank, Commonwealth Bank, has announced a record cash profit of $10.16 billion, despite a growing number of its customers feeling the impact of rising borrowing rates, resulting in a significant uptick in bad debts.

The bank’s financial results for the 2022-23 period marked a 6% increase from the previous year, with higher profit margins attributed to the rapid rise in interest rates.

CBA’s CEO, Matt Comyn, acknowledged the resilience of the economy but noted signs of stress among customers, particularly as the lagged effect of rising interest rates affects mortgage holders and increased living costs strain more Australians.

While consumer demand is moderating and economic growth is slowing, Comyn pointed out that immigration is providing a structural advantage to the economy.

Loan impairment expenses experienced a notable rise of $1.5 billion, which CBA linked to the pressures of the cost of living and escalating borrowing expenses.

The number of customers with arrears of over 90 days saw an increase across credit cards, personal loans, and home loans, though these levels remain relatively modest.

This surge in bad debts corresponds with a series of rate hikes, intended to control inflation, that have elevated the Reserve Bank’s cash rate from 0.1% to 4.1% since May of the previous year. Consequently, most mortgage rates have climbed above 6%, impacting recent first-time homebuyers and older Australians retiring with mortgages the hardest.

CBA’s financial outcomes underscore the uneven distribution of the effects of rising living costs, as customers under the age of 35 report decreased savings, while older demographics bolster their deposit accounts.

CBA’s key measure of profitability, net interest margins, rose by 17 basis points to 2.07%, reflecting a historically healthy level.

The banking sector has achieved margin expansion by increasing borrowing rates at a faster pace than deposit rates, a practice that has garnered attention from policymakers.

However, the rate of margin growth has eased in recent months, likely indicating a peak in profitability. With the deceleration in the rate hikes, the banking sector has turned its focus to attracting new customers to maintain profit margins.

Comyn emphasised during a briefing that the profits were not extraordinary, stating that the bank’s profitability had significantly declined in the last decade and currently lags behind several international markets.

Amid the record profit announcement, there were criticisms from political figures regarding the timing of this news, as CBA is simultaneously cutting jobs and facing concerns over employee workload and staffing issues.

CBA has unveiled a new buyback initiative and plans to pay a final dividend of $2.40 per share, bringing the total dividend for the year to $4.50 per share, up from $3.85 per share in 2022.

In response to the results, CBA’s shares surged by over 2% in early trading, approaching the record levels achieved earlier in the year.

Suncorp’s banking arm, headquartered in Brisbane, reported a robust 27.7% rise in net profit to $470 million, primarily driven by strong growth in home lending.

The mid-tier lender has been pursuing a sale of its banking arm to ANZ, but the transaction has faced regulatory hurdles due to concerns about further concentration in an already oligopolistic sector. Suncorp intends to challenge the regulator’s decision through a tribunal process in collaboration with ANZ.