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CBA is increasing its final dividend by 10 per cent to $2.10 a share. The payment will be fully franked and paid on September 29.
In late morning trading CBA shares were down 1 per cent to $100.28.
CBA’s result comes as investors are focused on how banks are being affected by rising interest rates, which have sparked fears of bad debts, and alongside a slowdown in the property market, which is a critical influence on banks’ loan growth.
At the same time, investors expect rising interest rates to ultimately widen banks’ profit margins, as lenders raise rates on loans more steeply than on deposits.
CBA’s net interest margin, which compares funding costs with what it charges for loans, contracted by 18 basis points to 1.90 per cent. The bank said this was because of customers switching to less profitable fixed-rate loans, strong competition in mortgage lending and an increase in CBA’s low-yielding liquid assets.
Even so, CBA reiterated its medium-term outlook for increasing margins as interest rates rose.
Chief executive Matt Comyn said households were in a strong position, but the bank expected a softening in consumer spending amid rising costs of living.Credit:Alex Ellinghausen
Another key concern for investors is how the bank’s loan portfolio is affected by rising rates and inflation, but CBA’s results showed the number of borrowers in financial stress had actually decreased.
Its expenses for soured loans fell sharply as it cut back on provisions it had made for the pandemic, with impairments producing a $357 million benefit for the bank’s profit. CBA said the proportion of customers falling behind on home loan repayments fell to 0.49 per cent, from 0.64 per cent last year, helped by low unemployment and households’ hefty savings buffers.
Citi analyst Brendan Sproules said CBA had beaten market estimates because of cuts in its provisions for bad debts, and the key issue remained the outlook for CBA’s markets.
Morningstar analyst Nathan Zaia said it was too early to say how the bank’s loan portfolio was being affected by rising interest rates. Zaia said bad debts were likely to rise, but CBA was entering the environment of rising interest rates with households in a stronger position than previous cycles.
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“We’re not expecting any huge increase [in bad debts]. It’s more likely we get a return to more normalised loss rates,” Zaia said.
Comyn highlighted the bank’s strong balance sheet was a highlight as the lender reported common equity tier 1 capital of 11.5 per cent of risk-weighted assets, which is higher than the 10.5 per cent required by regulators.
More to come