Australia’s Largest Bank Posts $5.15 Billion Half-Year Profit Amid Interest Rate Hikes

The sign of the Commonwealth Bank is seen at one of its branches in Melbourne, Australia, on Aug. 8, 2018. (William West/AFP via Getty Images)

The largest commercial bank in Australia has posted a solid half-year financial result as interest rate hikes, and business lending growth lifted its profit after tax significantly.

On Feb. 15, Commonwealth Bank of Australia (CBA) announced that it made a cash profit of $5.15 billion (US$3.6 billion) in the first half of the 2022-2023 financial year, a nine percent increase compared to 12 months earlier.

At the same time, its statutory net profit after tax rose ten percent to $5.22 billion.

The solid results were in line with what market analysts had forecasted.

CBA CEO Matt Comyn said the strong result was due to a rise in lending volumes and a recovery in margins caused by the interest rate hiking cycle implemented by the Reserve Bank.

“While there has been an improvement in margins as the cash rate increase from emergency levels, margins have not returned to pre-COVID levels,” he told investors in a briefing.

“Funding costs have increased significantly, which has also coincided with the escalating price-based offers across the home loan market in Australia and New Zealand.”

Rise in Major Profitability Indicators

During the six months to Dec. 31, 2022, the CBA achieved an operating income of $13.59 billion, up 12 percent from last year.

The surge was mainly driven by robust growth in the bank’s lending business in both residential and commercial loans.

It is worth noting that the net interest margin, a profitability indicator calculated by subtracting the total interest the bank charges customers from the total interest the bank pays to get its funding, lifted 23 basis points to 2.1 percent during the reporting period.

The increase shows that the CBA’s net interest margin has recovered from about a decade of decrease witnessed by the banking industry.

Commonwealth Bank CEO Matt Comyn appears at a public hearing at Parliament House in Canberra, Australia, on April 15, 2021. (AAP Image/Mick Tsikas)

Also increased were the bank’s operating expenses, which climbed five percent to around $5.9 billion due to more spending on staff and technology and inflation.

The lift in the CBA’s profit was not surprising, as it was within market forecasts.

In January, analysts at the global investment bank Goldman Sachs estimated that Australian banks would see a 20 percent surge in earnings this financial year as they engaged in the practice of delaying and not passing the increases in the official cash rate to savers in full.

Earlier, Treasurer Jim Chalmers criticised banks for not treating their customers fairly and asked the Australian Competition and Consumer Commission to probe into banks’ deposit rates.

CBA Is Optimistic About Australia’s Economic Outlook

As CBA reported a rise in its financial performance, the bank also expressed optimism about the economic outlook as it pointed to the “solid” fundamentals of the economy, such as low unemployment, strong exports, and returning migration.

And despite predicting an economic slowdown throughout 2023, the CBA chief executive was confident that the Australian economy would avoid a recession.

“We expect business credit growth to be moderate and global economic growth to slow during 2023,” Comyn said.

“However, we remain optimistic that a soft landing for the Australian economy can be achieved and positive on the medium-term outlook for Australia.”

People walk past a branch of the Commonwealth Bank of Australia in Melbourne, Australia, on Aug. 11, 2021. (William West/AFP via Getty Images)

While benefiting from higher interest rates, CBA said it was aware of the impact of rate hikes on Australian households.

“We are conscious that many Australian households are feeling the significant strain from rising interest rates, alongside the rising costs of electricity, groceries and other household items,” Comyn said.

“Despite this, consumer spending remains resilient, with signs of spend slowing in pockets.”

As such, the bank said it would focus on helping customers during the difficult period.

“Supporting our customers through rising rates and higher cost of living remains a priority and aligns with our purpose to build a brighter future for all,” Comyn said.

“We are providing personalised support, flexibility and financial assistance for our customers who need it.”

Given the strong half-year financial performance, CBA announced an additional share buyback of $1 billion.

It also declared a fully franked interim dividend of $2.10 per share, up 20 percent from the previous year.

The bank estimated that over 860,000 shareholders would receive the dividend, with an average amount of $1,650.