Commonwealth Bank Profit Gains 4.5%, Bad-Debt Charges Rise

  • Provisions for impaired loans up 67% on corporate defaults
  • Net interest margin `largely unchanged' from first half

Commonwealth Bank of Australia posted a 4.5 percent increase in quarterly profit and joined its main competitors in reporting higher charges for bad and doubtful debts.

Unaudited cash profit, which excludes one-time items, for the three months ended March 31 was A$2.3 billion ($1.7 billion) from A$2.2 billion reported a year earlier, the Sydney-based lender said in a statement Monday. Net income was A$2.4 billion from A$2.2 billion last year.

Commonwealth Bank’s quarterly disclosure is another indication of the challenge Australian lenders face from impaired loans as the commodity cycle turns, increasing corporate and consumer loan defaults in mining regions. Bad-debt charges at the lender rose to A$427 million from A$256 million reported a year earlier.

The increase in provisions for soured loans “is largely due to a small number of exposures in the group’s institutional lending portfolio which became impaired or exhibited heightened signs of stress, including a single relatively large domestic exposure with a syndicate of lenders including other Australian major banks,” Commonwealth Bank, the nation’s largest lender by market value, said in the statement without identifying the company.

Commonwealth Bank shares rose 0.5 percent to A$74.74 as of 11:15 a.m. in Sydney, while the benchmark index was little changed. The bank’s stock has declined 13 percent this year, the worst performer among the country’s largest lenders, while the S&P/ASX 200 Index has dropped 0.1 percent.

Trading Income

The net interest margin, a measure of lending profitability, was "largely unchanged" from the six months ended Dec. 31, it said. The measure stood at 2.06 percent at the end of 2015.

Trading income was “up slightly” in the quarter, including a small boost from derivative valuation adjustments. Funds management income was hurt by declining markets, the bank said. Operating-income growth was similar to the first half and expenses increased, the lender said, without giving further details.

Customer deposits made up 64 percent of total funding and liquid assets were A$141 billion, Commonwealth Bank said.

Common equity Tier 1 capital, a measure of a bank’s ability to absorb future losses, fell to 10 percent, after accounting for the interim dividend, from 10.2 percent three months earlier.

Commonwealth Bank, which follows a June fiscal year compared with September for its three competitors, rounds off the latest bank earnings from Australia’s largest lenders. Last week, Westpac Banking Corp. Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd. all missed half-year profit estimates. Australian banks reveal few details in their quarterly updates.

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