Commonwealth Bank’s strong performance in the mortgage market, business lending and household and business deposits during the December half has not done much to help its bottom line, as conditions that may persist for some time contributed to a weaker margin.
The bank grew home lending at an annualised rate of 5.6 per cent during the half, at 1.5 times overall system growth. Household deposits grew 16.5 per cent (annualised), at 1.1 times system. Business lending grew 7.5 per cent (annualised), at three times system. And business deposits grew 19.6 per cent (annualised), at 1.7 times system.
Total interest-earning assets grew 5 per cent but the net interest margin fell 10 basis points to 2.01 per cent. Net interest income of A$9.4 billion was unchanged compared with the previous corresponding period.
The bank reported net profit (including discontinued operations) of $4.9 billion for the six months to December – a fall of 20.8 per cent compared with the previous corresponding period. Cash profit from continuing operations fell 10.8 per cent to $3.9 billion.
The bank said the fall in the margin was due to competition in the mortgage market, which saw more switching to low fixed rates, plus discounting on new loan.
Another factor was an increase in non-lending interest-earning assets, including liquid assets, which provided a low yield.
Funding costs cut into the margin as well, reflecting lower earnings on transaction and savings deposits due to the reduction in the cash rate. Lower rates also meant lower earnings on capital.
Analysts at yesterday’s investor briefing sought reassurance that the increase in the bank’s investment budget, which contributed to higher operating expenses, would produce results in what is expected to be a low-growth environment for some time.
Operating expenses rose 7 per cent to $5.6 billion. Excluding remediation costs of $241 million, the increase was 2.3 per cent. The bank said higher expenses were the result of higher investment spend (up 34 per cent), increased staffing to deal with COVID impacts.
CBA chief executive Matt Comyn said the bank reviewed its investment spending regularly and took a flexible approach.
However, he said investment in technology and other areas was important to the future success of the bank.