The Commonwealth Bank has posted a $3.78 billion half-year profit and said the economic outlook is improving, as better global conditions held to revive confidence among households and businesses.
The country’s biggest lender today said cash earnings had increased by 6 per cent, as its flagship retail bank continued to benefit from solid earnings growth while it kept costs contained.
CBA shares jumped $1.59, or 2.4 per cent, to close at $67.11, after earlier in the day touching a new record high of $67.38, taking the bank's market capitalisation to $108 biillion.
Morningstar head of banking research David Ellis said Commonwealth Bank "did not disappoint with a cracker first half’’.
‘‘Australia’s largest bank continues to prosper due to better margins, higher trading income, a recovery in wealth management and productivity improvements," Mr Ellis said.
CBA's massive retail banking arm, where it writes one in every four home loans, posted a 13 per cent rise in income, contributing $1.5 billion to the result.
But in a sign that banks may continue to resist passing on any further cuts to the cash rate in full to borrowers, it also said its funding costs were under pressure.
Global outlook brightens
Although credit growth remaining sluggish across much of the economy, chief executive Ian Narev said the global economy had benefited from a period of stability over the last six months, which had lifted the economic outlook.
‘‘In each of the major areas of concern – European Union stability, US recovery and China’s on-going growth – developments have been positive overall,’’ Mr Narev said.
He stressed that the recovery in the United States remained fragile, and there was still no lasting resolution to the eurozone’s sovereign debt crisis.
‘‘But if the current stability continues, we believe it will translate into a slow but steady rebuilding of consumer and business confidence in Australia. And that is our base case for the 2013 calendar year.’’
As part of a plan to pay out a higher share of profits in the December half, the bank will raise its interim dividend by 20 per cent to $1.64.
Consequently, the final dividend paid later this year will be slightly lower than the 2012 payment, it said.
During the six month period, the Commonwealth Bank also said it had taken advantage of an easing on global funding markets, raising $13 billion in capital, with its net interest margin widening to 2.1 per cent from 2.06 per cent in the previous half.
Deposit competition drives costs
Despite the solid earnings growth, which was slightly higher than analysts had been expecting, CommBank became the latest lender to complain about funding costs, saying competition for deposits remained ‘‘fierce’’ and this continued to put pressure on margins.
‘‘Strong deposit growth during the period has seen the group satisfy a significant proportion of its funding requirements from high quality retail customer deposits. However, competition for deposits remains intense which had a negative impact on margins,’’ the bank said.
Banks have blamed competition for deposit funding for their failure to pass on official cuts in interest rates in full to borrowers.
Return on equity – a key measure of banks’ overall profitability – remained steady at 18.1 per cent.
CBA’s share of the home loan market has slipped from 25.3 per cent to 25.1 per cent over the past year, but it remains Australia’s dominant mortgage lender.
CBA's earnings are viewed as a bellwether for the banking sector as it reports on an earlier schedule to the country's other 'Big Four' banks - Westpac, National Australia Bank and ANZ.