Commonwealth Bank chief Ian Narev has defended his bank’s record $4.27 billion half year profit, saying strong banks lead to a strong economy.
The result puts the country’s largest bank on track to become the first to make a full year profit of more than $8 billion.
CBA’s half year cash profit, a measure banks use to reflect underlying performance, grew by 14 per cent in the six months to December 31, despite subdued economic conditions.
“The fact that major banks are doing well should be a source of strength for the economy,” Mr Narev said.
“One of the reasons why, given all the global turbulence, the Australian economy is doing as well as it has is because the major banks have continued to do well.”
The conservative nature of Australian banks was also contributing to their current profit growth, he said.
“That means the banks don’t try to make too much hay when the sun shines and therefore do a bit better when things turn down,” Mr Narev said.
CBA rewarded its shareholders with a 12 per cent increase in its interim dividend.
The bank’s profit growth came as its deposits rose by $40 billion from 12 months earlier, to $426 billion.
Customer deposits now account for 63 per cent of the bank’s total funding of loans.
An upturn in the housing market also drove a nine per cent rise in the value of its home loans.
Mr Narev said he was cautiously optimistic about the economic environment, despite both the Australian and global economies continuing to be volatile.
On the positive side, growth forecasts for developed economies had improved, consumer spending had grown over the holiday season and there was positive activity in the housing sector, he said.
“So all in all, we continue to assume that any improvements in economic activity in the next year will be gradual rather than dramatic,” he said.
Morningstar analyst David Ellis said CBA’s result exceeded expectations, displaying another strong and consistent performance.
“There were no adverse surprises … with all key earnings drivers underpinning our positive long term view,” he said.
Commonwealth Bank shares gained 28 cents, or 0.4 per cent, to $76.20.
