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Commonwealth Bank Posts A$1.9 Billion Third-Quarter Profit

Commonwealth Bank of Australia, the nation’s largest lender by market value, reported third-quarter cash profit of A$1.9 billion ($1.9 billion) on more profitable lending and controlled expenses.

Unaudited net profit in the three months ended March 31 was also A$1.9 billion, the Sydney-based bank said in a statement today. Cash profit, which excludes one-time items, was A$1.75 billion in the three months to March 2012, according to a filing last year.

Chief Executive Officer Ian Narev has boosted margins by passing on only part of the central bank’s 200-basis-point rate reduction since November 2011 and banks’ cost of raising funds through bond offerings has recently fallen to its lowest in 5 1/2 years. CBA, the nation’s top mortgage lender, has ceded market share to protect profit as home loan growth falls to its lowest on record.

“CBA continues to get the basics right, extracting attractive earnings growth from a low credit growth environment,” David Ellis, an analyst at Morningstar Inc. (MORN) said. “Loan growth continues to be fully funded from customer deposits, asset quality remains sound and strong capital levels are supported by good organic capital generation.”

Morningstar will probably raise its full-year cash profit forecast, he said. It currently expects CBA to report a record A$7.5 billion cash profit.

CBA shares ended 0.8 percent higher at A$72.65 in Sydney, extending gains for the year to 17 percent. The benchmark S&P/ASX 200 (AS51) index dropped 0.6 percent.

Net interest margin, a measure of lending profitability, was higher in the quarter, the lender said, without giving more detail.

Rate Cuts

Three of Australia’s four major lenders on May 7 passed on in full the central bank’s interest-rate cut for the first time in 17 months, sending benchmark home-loan costs to the lowest since 2009.

National Australia Bank Ltd. (NAB), CBA and Westpac Banking Corp. (WBC) cut their variable mortgage rate by 25 basis points after the Reserve Bank of Australia trimmed its key rate by the same amount to a record-low 2.75 percent. Australia and New Zealand Banking Group Ltd. lowered its home loan rate by 27 basis points.

Deposits made up 65 percent of CBA’s total funding in the third quarter, up from 63 percent in the six months to Dec. 31, the lender said. Special interest rates used to attract term deposits dropped to a four-year low of 4.20 percent at the end of April, Reserve Bank of Australia data show.

Core tier 1 capital, a measure of a bank’s ability to absorb losses, was 10.3 percent at the end of March, down from 10.6 percent three months earlier. It set aside A$255 million for bad debts, the lender said.

Mortgage Growth

Growth in mortgages, which is CBA’s biggest segment, remained modest in the quarter with the bank’s lending growing faster than the industry average, it said.

While outstanding home loans grew a record-low 4.4 percent in the year to March, according to central bank data, home buyers are returning to the market. Australian home-loan approvals rose the most in four years in March, data showed on May 13. The number of loans granted to build or buy houses and apartments advanced 5.2 percent from February, when they rose a revised 2.1 percent, the statistics bureau said.

CBA results follow higher first-half earnings by its main competitors in the last two weeks. ANZ and Westpac Banking Corp reported a 10 percent increase in cash profit while National Australia Bank reported a 3.1 percent increase. CBA follows a June ending year while the other banks’ fiscal year ends in September.

To contact the reporter on this story: Narayanan Somasundaram in Sydney at nsomasundara@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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