CBA Profit Growth Slowest Since 2009, Bad-Debt Charges Climb

(Bloomberg) -- Commonwealth Bank of Australia, the nation's largest lender, posted a 3 percent increase in full-year profit to a record for the seventh consecutive year, driven by higher earnings at its retail banking unit.

Cash profit, which excludes one-time items, rose to A$9.45 billion ($7.25 billion) from A$9.14 billion a year earlier, the Sydney-based lender said in a regulatory filing Wednesday. That was the slowest annual profit growth since a drop in the measure in 2009 and compares with the A$9.5 billion mean estimate of 13 analysts, according to data compiled by Bloomberg.

Australia's biggest banks are drawing the curtain on a streak of record profits bolstered by foreign lenders exiting the market, declines in impairments to unprecedented lows and cost cuts. The nation's big four lenders are also facing a regulatory clampdown on mortgages to combat runaway housing prices and bracing themselves to meet demands to boost capital and liquidity.

“The headwinds faced by Australian banks are well documented,” David Ellis, a Sydney-based analyst at Morningstar Inc., said by phone. “It's a pretty solid result in challenging conditions and I expect the bank to resort to a wide range of initiatives including cost cuts and interest-rate changes to maintain profit growth.”

Profit fell at all units except in the retail lending, and business and private banking divisions, Commonwealth Bank said. The retail banking unit's profit rose 11 percent, while earnings from its institutional banking and markets business declined 9 percent. Wealth-management income dropped 6 percent, the bank said.

“Income growth inside and outside Australia remains weak, so people are not feeling better off,” Chief Executive Officer Ian Narev said in the statement. “When combined with ongoing global economic and political uncertainty this makes households and businesses cautious, and hesitant to respond to monetary stimulus.”

The Reserve Bank of Australia last week dropped its cash rate by a quarter point to an unprecedented low of 1.5 percent to stoke inflation and wage growth.

Bad-debt charges rose 27 percent from a year earlier to A$1.26 billion, due to higher provisioning for its exposure to the resources, commodity and dairy sectors, it said.

Net interest margin, a measure of lending profitability, fell to 2.07 percent from 2.09 percent a year earlier.

The common equity Tier 1 ratio, a measure of a bank's ability to absorb future losses, rose to 10.6 percent at the end of June from 10 percent three months earlier, Commonwealth Bank said. It raised A$5.1 billion last year by selling new shares to meet new regulatory requirements.

Customer deposits made up 66 percent of total funding from 64 percent six months earlier, and the net stable funding ratio exceeded 100 percent.

The bank, the nation's biggest mortgage lender with a 25 percent market share, will pay a final dividend of A$2.22 a share compared with analyst estimates of A$2.32.

Commonwealth Bank's business year ends in June, compared with September for its main competitors. Australia & New Zealand Banking Group Ltd. Tuesday said its cash profit in the first nine months slipped 3 percent. National Australia Bank Ltd. reports its quarterly update Aug. 15. Westpac Banking Corp. doesn't provide one.

Commonwealth Bank shares were little changed as of 10:27 a.m. in Sydney. They have dropped about 8 percent this year compared with a 7.6 percent decline in the bank index and a 4.7 percent increase in the benchmark S&P/ASX 200 Index.

To contact the reporter on this story: Narayanan Somasundaram in Sydney at nsomasundara@bloomberg.net. To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net, Andreea Papuc, Russell Ward