CommBank chief defends 'excessive' profit
Commonwealth Bank chief executive Ian Narev has conceded that some people will see the bank's latest profit result as excessive, after lenders' refusal to pass on recent cuts to the cash rate in full to borrowers.
I completely understand why those people think the way they do and it’s a legitimate observation.
However, he said that funding costs remained a pressure for the bank, and it would continue to weigh up the interests of borrowers, investors and savers.
Prepared to take the heat ... CBA chief executive Ian Narev. Photo: Andrew Quilty
The country’s biggest lender said cash earnings grew by 6 per cent to $3.78 billion profit in the latest half, helped by a strong performance in its flagship retail business that offers home loan and deposit accounts.
Profit margins also widened over the six month to December, as wholesale funding costs fell and it passed only part of the 0.5 percentage point cut in interest rates.
Banking shares have rallied on the stronger-than-expected result, pushing the Commonwealth Bank’s market value 2.5 per cent higher to around $108 billion.
After the Greens this morning accused the bank of gouging customers, Mr Narev said he understood that some people struggling in a weaker economic environment would see the result as ‘‘too much.’’
‘‘I completely understand why those people think the way they do and it’s a legitimate observation,’’ Mr Narev told analysts.
‘‘Our job, unfortunately, is we’ve just got to keep focused on the right balance between their needs, deposit-holders’ needs, and the needs of 800,000 Australians who own the shares directly and millions more through funds.’’
He said the bank needed to realise that ‘‘at any given time one or more of those groups of stakeholders is going to hate us’’, but he was prepared to ‘‘take the heat’’ if the bank attracted more criticism over its rates decisions.
The comments come after the bank said competition for deposits remained ‘‘fierce’’ and this continued to eat into its profit margins.
A Deutsche Bank analyst, James Freeman, said earnings estimates across the banking sector are likely to be upgraded after the earnings result, which he described as ‘‘strong’’.
The result was 2.5 per cent higher than what brokers were expecting, and has boosted the share prices of the other big lenders, Westpac, ANZ and NAB.
"While consensus upgrades are likely for CBA, the result shows strong underlying trends which should be reflected in other banks’ results," Mr Freeman said.