The observation follows a similar trend noted by the other major banks, particularly ANZ. Photo: Jessica Shapiro
COMMONWEALTH Bank has revealed its business customers were starting to feel the pinch of a slowing economy, as the lending major's bad debt charges have moved higher for the first time in two years.
In its latest financial update, the nation's biggest bank yesterday posted a 6 per cent lift in first-quarter cash profit to $1.85 billion.
Analysts said the latest result, for the three months to the end of September, will put the bank on track to top the previous financial year's $7.1 billion cash profit.
However, they narrowed in on worrying signs of stresses returning to its lending books with the update revealing the bank's troubled loans increased for the first time since the second half of 2010.
Over the quarter impaired assets increased $300 million to $4.8 billion. ''If these trends persist, bad and doubtful debt charge increases could be more material than we currently anticipate,'' said Nomura Equities analyst Victor German.
CBA said its revenue growth continued to reflect a combination of conservative business settings, relatively slower credit growth and elevated funding costs.
But it has seen a fall in the quality of its business loan portfolio due to tough economic conditions.
''A slight deterioration in corporate credit quality in the quarter reflected the continuing difficult operating environment in certain sectors of the economy,'' CBA said.
The observation follows a similar trend noted by the other major banks, particularly ANZ, which said last month it expects to see difficulty among small and medium-sized businesses. Unlike its big three rivals, which have posted full-year accounts in recent months, CBA operates on an end-June financial year.
Fitch Ratings has also forecast a rise in bad debt costs for the big four, saying on Wednesday the best point of the credit cycle was now past.
''Early signs of deterioration are emerging in lending to domestic sectors such as agriculture, manufacturing, retail and tourism - which are exposed to the strong Australian dollar,'' the agency said.
CBA said a rise in bad debts in its business book were not reflected in its retail lending book - which is mostly made up of mortgages and consumer loans - where arrears were lower in the first quarter.
That saw the bank's impairment expense for the three months to September remain broadly in line with the previous financial year.
CBA also said its movements in interest rates had largely offset the high costs of attracting deposits, which now make up 63 per cent of CBA's total funding. Net interest margins, a key measure of the profitability of its lending, were broadly in line with margins in the second half of the 2012 financial year just past.