Commonwealth Bank 1Q Profit Up 4%, Bad-Debt Charges Rise

Updated on
  • Net interest margin a `slightly lower' on higher liquid assets
  • Domestic loan growth remains at mid-single digit levels

Commonwealth Bank of Australia posted a 4 percent rise 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 Sept. 30 was A$2.4 billion ($1.7 billion) from A$2.3 billion reported a year earlier, the Sydney-based lender said in a statement Thursday. Net income was A$2.3 billion from A$2.4 billion last year. Australian banks reveal few details in their quarterly updates.

Commonwealth Bank’s quarterly snapshot is another indication of slowing earnings at Australia’s largest lenders amid increased competition and regulation. The lenders have raised almost A$20 billion this year to meet regulatory requirements partly intended to shield them from any downturn in the housing market. They have also increased mortgage rates, blaming the cost of holding more capital.

“Revenue and margin headwinds, rising costs and capital levels, and a deteriorating credit quality outlook all mean the majors will face significant challenges in the year ahead,” KPMG said in a statement, referring to the nation’s four largest lenders, before Commonwealth Bank’s results.

Rising Bad Debt Charges

Bad-debt charges rose to A$220 million from A$198 million a year earlier, Commonwealth Bank said. The net interest margin, a measure of lending profitability, was slightly lower because the lender is holding more liquid assets instead of using them for loans, it said.

Trading income was a “little lower” than the quarterly average of the previous year, reflecting a derivative valuation adjustment, it said.

Customer deposits made up 63 percent of total funding and liquid assets totaled A$137 billion, Commonwealth Bank said.

Common equity tier 1 capital, a measure of a bank’s ability to absorb future losses, climbed to 9.8 percent from 9.1 percent as of June 30. The lender has raised A$5.1 billion this year by selling new shares to meet new regulatory requirements. Last month, it raised its mortgage rate for owner occupiers by 15 basis points.

Commonwealth Bank rounds off the largest Australian bank earnings. This week Westpac Banking Corp. posted its slowest profit increase in six years after Australia & New Zealand Banking Group Ltd. had its weakest profit growth since 2008 last week. National Australia Bank Ltd. missed profit estimates Oct. 28.