The Commonwealth Bank has lifted its profit by 7 per cent and forecast economic growth to ease to a modest pace amid continued headwinds from the global credit crunch.
Net profit for the year ended June30 rose to $4.791billion while the bank's preferred measure of profitability, cash earnings, rose by 4.6 per cent to $4.733billion.
Rampant earnings growth in previous years was curbed by $930million worth of bad debts and higher interbank borrowing costs, which blew a $279 million hole in the bank's bottom line, despite its own unpopular rate rises.
Chief executive Ralph Norris said that while CBA would like to pass on any downward movement in official interest rates to its customers, he couldn't guarantee it.
The bank said that uncertainty and volatility in global credit markets would continue to place upward pressure on its funding costs.
The Reserve Bank is expected to cut the 7.25per cent official cash rate next month.
Australia's biggest bank by market value also announced yesterday that it had withdrawn from talks with Royal Bank of Scotland to acquire investment bank ABN Amro Australian Holdings, citing tough market conditions.
Still, CBA said that it would continue to seek investment opportunities softened up by the global credit crunch.
Although economic conditions in US and Europe remained hostile, Mr Norris said the Australian domestic economy was reasonably resilient, thanks to its exposure to booming Asian economies, tax cuts and robust business and infrastructure spending.
But credit growth was expected to moderate to slightly below the 10-year average as rising costs reduced demand for credit.
''The balance of these opposing forces favours continued modest economic growth with credit growth not too far below the average of the past decade,'' he said.
The bank's $930million bad debt charge was $496million higher than in the previous year. But it was still much lower than the combined $3billion-plus in losses announced recently by National Australia Bank and ANZ Banking Group, which are on track for a fall in their annual profits.
Mr Norris said CBA's increased impairment charge was inflated by a ''conservative'' $212million economic overlay to account for the tougher environment.
The bank didn't have any new, large single-name exposures in the second half and those announced in the first half, like Centro Properties Group, hadn't deteriorated.
However, the large write-downs announced by its two peers influenced CBA's decision to abort its takeover talks with ABN Amro.
CBA ended the talks with ABN's current owner Royal Bank of Scotland on Tuesday, one week into the due diligence process.
Mr Norris said the NAB and ANZ write-downs had affected the reputation of Australian banks and their ability to access funds.
Asked why CBA had walked away from the deal, Mr Norris said, ''The situation changed over the last couple weeks with, obviously, the impact of statements that came out of Melbourne in regard to a couple of banks and their respective positions.''
He said, ''Obviously in undertaking an acquisition of this type it was a requirement to raise significant funds for the book that we would be taking over from RBS.
''And we came came to a conclusion, as at yesterday, given where markets are, that it would be prudent at this point not to go any further with the due diligence process that we were already involved with.''
Mr Norris said later that the bad news from ANZ and NAB was one factor which influenced its decision.
Others included the risks involved in integrating complex businesses amid uncertain market conditions.
He said CBA had raised capital the day before the first big write-down announcement, from NAB.
CBA had been told that if it had gone to the market later, it would have received less funding. It would also have paid 20 basis points more.
The retail banking services operation maintained its solid performance over the year with cash net profit increasing by 8 per cent.
There was strong growth in key products such as home loans and retail deposits.
CBA's wealth management business increased underlying net profit by 38per cent. AAP