Commonwealth Bank Profit Rises to Record on Retail Business

Commonwealth Bank of Australia, the nation’s biggest lender, said first-half profit rose 1 percent to a record as retail banking and wealth management earnings increased.

Net income climbed to A$3.66 billion ($3.77 billion) in the six months ended Dec. 31 from A$3.62 billion a year earlier, the Sydney-based bank said in an e-mailed statement today.

Commonwealth Bank rose the most in more than a year in Sydney trading after the report showed Chief Executive Officer Ian Narev preserved interest margin following six central-bank interest-rate cuts. The Reserve Bank of Australia has reduced benchmark rates to a half-century low to boost the economy and revive the weakest mortgage demand since 1977.

“The key from today’s earnings is margin expansion and reasonable asset quality,” said Christopher Hall, an Adelaide-based senior investment officer at Argo Investments Ltd. “The only thing missing is loan demand and customer confidence. That should come through if market volatility stays low.”

The shares jumped 2.4 percent, the biggest daily gain since Dec. 1, 2011, to a record A$67.11 in Sydney. The benchmark S&P/ASX 200 index rose 0.9 percent.

Wider Margin

Net interest margin, a measure of the profitability of lending, rose 4 basis points from six months earlier to 2.1 percent, Commonwealth Bank said. The margin declined 2 basis points from a year earlier.

Asset repricing added 7 basis points to interest margins in December, compared with the preceding six months, almost making up for an increase in deposit cost, the bank said in a presentation to analysts. While the central bank has cut rates by 1.75 percentage points since November 2011, Commonwealth Bank has passed 1.41 percentage points on to customers, data compiled by Bloomberg show.

“Improving net interest margins and asset quality are some positives,” said Paul Xiradis, chief executive officer at fund manager Ausbil Dexia Ltd. in Sydney. “It shows the banking sector is in pretty good shape.”

Income from retail banking services climbed 13 percent from a year earlier to A$1.5 billion, and wealth management profit rose 10 percent to A$334 million, Commonwealth Bank said.

First-half earnings were in line with the A$3.72 billion median profit estimate of five analysts surveyed by Bloomberg.

Deposit Funding

Australia’s biggest banks have cut their reliance on credit markets as local households repay debt and save at close to the highest rate in a quarter century. Commonwealth Bank gets 63 percent of its funding from customer deposits, it said today.

The bank plans to raise A$25 billion to A$30 billion from wholesale markets this fiscal year, in line with a year earlier, Chief Financial Officer David Craig told reporters in Sydney. It had issued A$20 billion of debt this year as of yesterday, he said.

Debt funding costs have fallen. Last month, the bank raised A$2.5 billion from five-year bonds, paying 95 basis points more than swaps. That compared with Melbourne-based National Australia Bank Ltd.’s A$3 billion raising last year at almost double the spread, data compiled by Bloomberg show.

“Since reporting our full-year results in August last year we have seen some improvements in the global macroeconomic environment,” Narev said in the statement today. “If the current stability continues, we believe it will translate into a slow but steady rebuilding of consumer and business confidence in Australia.”

Australian consumer sentiment surged the most since September 2011 this month as the central bank’s rate reductions begin to gain traction, a survey by a Westpac Banking Corp. and Melbourne Institute showed today.

Still, home-loan approvals fell in December for a third month and first-home buyers slumped to the lowest in eight-and-a-half years, the statistics bureau said on Feb. 11.

National Australia Bank reported last week that cash profit climbed 3.6 percent in the three months ended Dec. 31 to A$1.45 billion. Australia & New Zealand Banking Group Ltd. is scheduled to report its first-quarter earnings on Feb. 15.

Before it's here, it's on the Bloomberg Terminal.