Australia’s largest commercial bank has reported a drop in profit in the first half of the 2023-2024 financial year, citing the impact of inflation and challenging economic conditions.
While the company’s revenue almost remained the same at $13.6 billion, its operating expenses were 4 percent higher ($6.01 billion) than the first half of the 2022-2023 financial year.
During the six-month period, the bank’s staff expenses rose by 6 percent, occupancy and equipment expenses by 5 percent, and information technology expenses by 8 percent.
CBA chief executive Matt Comyn told shareholders that the company’s lower cash profit reflected inflation pressure on costs and a competitive operating environment.
“Downside risks are building as slowing demand and persistent inflation impact Australian businesses. Ongoing geopolitical tensions also create uncertainty.”
CBA’s net interest margin, an indicator of profitability, slipped 11 basic points to 1.99 percent due to increased competition, customers switching to higher-yielding deposits, higher wholesale funding costs, and a lower contribution from its New Zealand subsidiary.
The bank’s latest results were a big step down compared to the previous year, where it made a record profit after tax of $5.15 billion (up 9 percent) in the first six months of 2022-2023, following a series of interest rate hikes by the Reserve Bank.
As CBA was facing increasing operating costs, it was reported that the bank had been looking for ways to reduce its expenses.
Challenging Outlook for 2024
Mr. Comyn predicted that 2024 would be a challenging year for the bank amid the current economic conditions.“As cash rate increases have a lagged impact on households and business customers, we expect financial strain to continue in 2024, with an uptick in our arrears and impairments,” he said.
E&P Capital financial analyst Azib Khan also pointed out that while CBA’s cash profit was better than market expectations, the bank did not provide an outlook for its profit and loss in 2024.
“We see risk of consensus core profit being downgraded by 1 to 2 percent for each of the next three years,” he wrote in a client note.
Nevertheless, Mr. Comyn was optimistic about the outlook of the Australian economy and the bank’s ability to cope with economic headwinds.
“Our balance sheet remains strong with high levels of provision coverage, surplus capital, and conservative funding metrics,” he said.
“We remain well provisioned and capitalised, with capacity to navigate an uncertain economic environment.”
