Commonwealth Bank yesterday produced an uninspiring trading update for the first quarter, - one contained by "muted" credit growth and retail margins described as "the lowest ever".
Cash earnings for the September 2010 quarter were around $1.6 billion. The bank reported a cash profit of $6 billion in the 2010 financial year.
The bank highlighted the decline in the retail margin in Australia to 2.15 percentage points from 2.19 percentage points three months earlier.
Analysts on yesterday's conference call pushed for clarity on whether the retail margins, or group margins, increased at all recently, perhaps during the June 2010 quarter.
The bank's chief financial officer, David Craig, said retail margins continued to decline by between one basis point and two basis points each month and consistent with trends mentioned during the full year profit briefing.
The bank did note that margins were now falling on larger business loans as international demand from banks and fund managers for corporate debt improved.
Thus the increased yield on the home loan book will to some extent be offset by reversal in margin trends in corporate banking.
Craig also confirmed that the bank expected to pay at least some of the higher yield from home loans away in the form of higher rates on deposits, leaving the improvement in retail margins arising from the rise in home loan rates hard to pin down.
The level of impaired assets increased moderately to a ratio of 107 basis points of gross loans.
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One bright spot was that the level of new impaired assets that fell to a ratio of 22 basis points for the quarter, and down from 46, 49 and 51 bps over three prior halves.
On the other hand recent lending volumes, across the industry, are subdued as CBA noted.
Monthly data on lending finance from the Australian Bureau of Statistics shows a mild rise in commercial finance commitments over the last quarter, after months if declines. Personal lending volumes are rising gently are back over levels of new business experienced before the financial crisis.
These factors gave rise, in the context of CBA's recent trading, to the financing by the bank of net lending growth through net deposit growth over the quarter, with no need to fund the growth from wholesale markets.
Operating conditions, however, for CBA remained "challenging", credit growth remain "muted" and "margins continue to come under pressure from higher average funding costs and price competition" the bank said.
CBA repeated one optimistic line from its 2010 profit guidance: "We expect a gradual improvement in operating conditions in the second half of this financial year, as the economic recovery strengthens and system credit growth rebounds."