Commonwealth Bank Third-Quarter Profit Climbs 16% on Lending

Commonwealth Bank of Australia, the nation’s largest lender by market value, reported third-quarter cash profit climbed 16 percent as revenue grew faster than costs and charges for bad debts fell.

Unaudited cash profit, which excludes one-time items, was A$2.2 billion ($2.06 billion) in the three months ended March 31, the lender said in a statement today. That compared with A$1.9 billion reported a year earlier. Unaudited net income was A$2.3 billion, up from A$1.9 billion a year earlier.

Chief Executive Officer Ian Narev is focusing on gaining market share as mortgages expand at the fastest pace since July 2011 and business credit growth accelerates. The Sydney-based bank, which issues one in every four mortgages in the country, increased home loans by 6.8 percent in the year through March, according to the Australian Prudential Regulation Authority.

“CBA is balancing volume growth and margins well, with the fall only due to the build up of liquids,” Brett Le Mesurier, a Sydney-based analyst at BBY Ltd., said by phone. “There are also ongoing improvements in credit quality and the bank is focusing on building up the capital ratio, which is a positive sign.”

CBA set aside A$204 million as bad debt charges in the quarter, the lender said in the statement. That compared with A$255 million reported a year earlier.

Lower Margins

Net interest margin, a measure of lending profitability, dropped slightly as the lender boosted liquid assets to A$144 billion at the end of March from A$137 billion three months earlier, it said in today’s statement. CBA’s main competitors, Australia & New Zealand Banking Group Ltd., National Australia Bank Ltd. and Westpac Banking Corp., all reported lower margins, with NAB posting its lowest in at least a decade.

Growth in the first half was maintained into the third quarter, while there was more focus on managing the trade off between volume growth and margins as lending competition increased, CBA said in today’s statement.

Trading income returned to normalized levels, the bank said without elaborating.

Growth in mortgages in Australia was “moderate”, it said. Home loans are the bank’s biggest business. Mortgages across all lenders climbed 5.9 percent in the year through March 31, the fastest pace since July 2011, Reserve Bank of Australia data show.

The 225-basis-point reduction in the central bank cash rate since late 2011 to a record low 2.5 percent spurred new business credit, which was offset by higher levels of loan repayment, Commonwealth Bank said. Business credit grew 2.6 percent across Australia, according to RBA data.

Term Funding

Customer deposits remained at 63 percent of CBA’s total funding last quarter, the lender said. Common equity tier 1 capital, a measure of a bank’s ability to absorb future losses, was also flat from three months earlier at 8.5 percent, the lender said. The bank has raised A$29 billion from the bond markets “largely meeting” the funding needs for the year ending June 30, it said.

CBA’s profit increase follows an 11 percent climb in ANZ’s cash profit in the six months ended March. Westpac’s profit rose 8 percent and NAB’s increased 8.5 percent, company reports showed this month. CBA’s fiscal year ends in June, compared with September for its main competitors.

CBA shares, which reached a record yesterday, were 0.2 percent lower at A$79.76 at 10:19 a.m in Sydney. The shares have climbed 2.7 percent this year, compared with a 2.5 percent gain for the benchmark S&P/ASX200 index.

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