Australia’s CBA Q1 Profit Increases Due to Rising Lending Growth and Interest Rates

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Australia’s biggest lending bank, Commonwealth Bank of Australia, revealed early this month that first-quarter cash profits were higher than anticipated as more robust lending growth and rising interest rates offset weaker margins.

The strong monetary tightening strategy used by the central bank to rein in spiralling inflation is helping Australian banks boost their meagre profit margins and income from high-interest rates.

“The economy has shown resilience in the face of growing cost of living and interest rate pressures, and despite these near-term challenges, we remain optimistic on the medium- to long-term outlook,” Chief Executive Officer Matt Comyn said.

The Sydney-based lender’s net interest income increased by 16% due to higher deposit earnings and volume growth in its essential products, including home loans, business loans, and household deposits.

In the three months that ended on September 30, cash profit increased to A$2.50 billion ($1.68 billion), up from A$2.20 billion a year earlier and above the Visible Alpha consensus estimate of A$2.33 billion. Cash profit removes one-offs and non-cash accounting factors.

In comparison to the same quarter last year, the bank’s portfolio of home loans increased by 6.3%, while business loans and consumer deposits increased by 12.6% and 8.6%, respectively.

Meanwhile, the other three of Australia’s “big four” lenders, National Australia Bank, Westpac Banking Corp, and Australia and New Zealand Banking Group, have previously issued warnings about rising costs in the upcoming fiscal year.

Due to low unemployment rates, according to CBA, which holds a quarter of the Australian mortgage market, late and impaired loans remained at low levels. For personal loans, it had multi-year low arrears of 0.88%, and for mortgage loans, it had arrears of 0.44%.

Analysts predict that those numbers could rise due to growing inflation, interest rates, and unemployment.

With remediation expenditures excluded, operating expenses increased by 4.5%, primarily due to rising wages and longer workweeks.

Ultimately, the first quarter results signal that Australia’s banking sector remains in reasonably good shape despite recent signs of a slowdown.

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