The Commonwealth Bank has defied a slowing economy to post a $9.8bn full-year cash profit in a robust result delivered against a backdrop of rising household costs and mortgage stress.
The result, representing a modest 2% decline from last year’s record cash profit, beat analyst expectations and rewarded investors with a higher-than-expected dividend.
CBA’s chief executive, Matt Comyn, said that while many Australians were challenged by cost-of-living pressures and were experiencing falling levels of disposable income, the economy remained resilient.
“Higher interest rates are slowing the economy and gradually moderating inflation,” Comyn said.
“Australia remains well-positioned but downside risks continue around productivity, housing affordability, as well as ongoing global uncertainty.”
Australia’s largest bank generates the bulk of its revenue from mortgage and business lending.
CBA shares recently powered to record highs amid optimism from shareholders that the major lender would navigate economic headwinds and increasing levels of customers falling behind on repayments would not dent profits.
The value of “past due” home loans increased from $14.8bn to $17.6bn over the financial year, the results show. Credit card and personal loan arrears also jumped in a reflection of the “impact of higher interest rates and cost-of-living pressures on some borrowers”.
The question now turns to whether the arrears rates will stabilise, or if the seeds of a sharper increase have been planted.
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Households typically prioritise mortgages over other repayments, like car loans, and lenders offer home loan customers more flexibility when they start falling behind, which can help mask the true extent of financial distress among borrowers.
CBA noted that the last six months have been tougher on younger customers, with savings rates falling for all cohorts aged under 55, compared to rising savings for older Australians. Those aged under 34 are also engaging in the deepest cuts to their discretionary spending.
CBA’s chief gauge of profitability, net interest margins, held steady over the past six months at 1.99%, reflecting the end of a period of more intense competition to win mortgage customers that had previously eroded the sector’s profit margins.
Australia’s biggest lender declared a final dividend of $2.50 per share, up from $2.40 a year ago.
