Mortgage lending increased in October, but it was too early to say if it was because of the Melbourne Cup day rate cut, Commonwealth Bank’s boss says.
A second rate cut would typically be needed to produce a meaningful spike in the housing market, CEO Ralph Norris said.
“We are starting to see in this quarter, the mortgage market is a little more active,” Mr Norris told analysts as he gave an update on CBA’s first quarter performance on Tuesday.
“It’s a little early to say whether that is purely seasonal, or whether or not we are seeing some impact from the recent rate reduction.
“At the moment there is no doubt that business volumes do look a little stronger.”
Commonwealth Bank of Australia (CBA) posted unaudited cash earnings of approximately $1.75 billion for the three months to September, up from approximately $1.6 billion in the same period last year.
The first quarter performance puts the bank on track to at least equal last year’s full year cash profit of $6.84 billion.
But Mr Norris said operating conditions remained challenging, with fragile consumer and business confidence reflected by subdued demand for borrowing.
Northern hemisphere problems were the main factor causing uncertainty, he said.
“Sovereign debt concerns in Europe continue to weigh heavily on the global economic outlook, and will clearly take some time to play out,” Mr Norris said.
“More broadly, economic indicators remain mixed, with the signs of any improvement patchy at best, particularly in the northern hemisphere economies.”
Those issues impacted CBA in two areas during the first quarter.
The first was its underlying net interest margin (NIM), a key driver of profitability, which declined slightly from three months earlier.
That was due to an increase in value of CBA’s liquid assets, plus the high costs of offshore wholesale funding.
“Looking forward, the margin outlook continues to be clouded by the global economic situation and the flow-on impact to wholesale funding markets, where costs remain elevated,” Mr Norris said.
The second impact came in market trading, where income was about $60 million below the long-term average of $163 million.
The trading business was a little stronger in October, but whether that remained the trend was uncertain, Mr Norris said.
CBA’s cash earnings performance was in line with expectations, but the lower margin disappointed.
CBA shares were down 75 cents, or 1.5 per cent, at $49.11 at 1436 AEDT, while ANZ was slightly higher and Westpac and NAB were down by less than 0.3 per cent.
CBA needed to deliver $5.45 billion in earnings over the next nine months to meet the market’s estimates, City Index chief market analyst Peter Esho said.
“In order to do that, it needs to lift its net interest margins,” he said.
Stocks in National Australia Bank and ANZ appeared to hold better value based on price and dividend yields, he said.
