Australia's CBA posts record $6.7 billion full-year profit amid business lending push

By Scott Murdoch and Sameer Manekar

(Reuters) -Commonwealth Bank of Australia reported its best full-year cash earnings of A$10.25 billion ($6.69 billion) and a record dividend payout on Wednesday as the bank made a major push to gain business lending market share from its rivals.

However, shares in CBA, considered one of the most expensive banks in the world, fell 4% in early trade, as some analysts said its bottom line was boosted by an A$125 million lift in trading income which can be volatile.

"The underlying business has been operating soundly, but the shares remain very expensive and are priced for perfection and will likely see people taking profits following the result," said Michael Haynes, equities analyst at Atlas Funds Management, which is a CBA investor.

The bank’s profit came in slightly higher than a Visible Alpha consensus of A$10.24 billion and climbed from last year’s A$9.84 billion.

CBA’s shares trade on much higher valuations than major banks worldwide, with its price-to-book ratio at more than triple the industry median, according to LSEG data.

Australia’s largest lender declared a final dividend of A$2.60 per share, compared with A$2.50 apiece last year. Its full-year dividend payout of A$4.85 apiece is the highest ever and topped analysts’ estimates.

CBA’s cash earnings rose on lending growth, especially in business banking, while underlying margins were stable.

Interest rate cuts by the central bank lowered the bank’s total loan impairment expenses as economic conditions improved. The Reserve Bank of Australia on Tuesday cut the official cash rate to 3.6% in its third interest rate reduction this year.

"Many households have seen a rise in disposable incomes due to the recent relief from reduced interest rates, lower inflation and tax cuts," CBA said in its full-year earnings report.

The bank warned the broader environment remained characterised by "a rise in global macroeconomic uncertainty, increased geopolitical risk and continued domestic competitive intensity", but said it maintained "prudent balance sheet settings over the long term".

CBA said 85% of its customers were ahead on their mortgage repayments. However, despite the improving economic conditions, CBA said home loan payments delayed for more than 90 days jumped 5 basis points to 0.70%, the highest since at least 2018. The bank said some customers continued to be impacted by cost-of-living pressures.

CBA, which underwrites a quarter of Australia’s A$2.2 trillion mortgage market, saw its home and business lending grow 6.1% and 12.2%, respectively, in the past year, both outpacing the average growth seen by the overall banking system.

Cash profit from business lending hit A$4.1 billion, up 8% on last year. The increase was the result of CBA making a concerted push to take market share from its major rivals.

CBA’s business lending share edged up to nearly 19% in the year, narrowing the gap with leader National Australia Bank (OTC:NABZY), which held about 21% in March.

Competition in business lending is heating up as banks target traditional sector leader NAB on the back of volatility under its chief executive, Andrew Irvine.

"Business banking is a higher margin business and CBA is moving more into that. Its priority is still to be number one for home lending and the icing on the cake is now business banking," said Atlas Funds’ Haynes.

CBA’s net interest margin, a key measure of profitability, rose 9 basis points from last year to 2.08%. The common equity tier 1 capital ratio, a measure of spare cash, was flat from last year at 12.3%.

($1 = 1.5323 Australian dollars)