Australia’s biggest mortgage lender has posted a record first half profit result just days after inflicting more pain on home loan customers.
The Commonwealth Bank of Australia (CBA) on Wednesday reported a 19 per cent rise in net profit to $3.624 billion for the six months to December 31 from $3.052 billion a year earlier.
The record result came two days after the bank joined its rivals in lifting standard variable interest rates, despite the Reserve Bank of Australia (RBA) leaving its cash rate on hold last week.
Chief executive Ian Narev said funding costs and interest rates would keep rising across the banking sector amid weak credit growth.
But he said CBA, unlike its rivals, had no plans to slash jobs in an attempt to cope with the higher costs of borrowing money from overseas markets.
Instead, CBA intends to make productivity gains by examining processes across the group and applying new technology to bank operations.
“We do not have any plans for major redundancy programs,” Mr Narev said. “We do not have any plans for offshoring.
“We don’t have a different view from any of our competitors on the need to be as productive as we can be. We do have a different view on how to achieve that productivity in a sustainable way.”
The Finance Sector Union said Mr Narev’s comments effectively threw the gauntlet down to other banks to remain profitable without shedding jobs.
“CBA faces the same challenges and cost pressures as the other big banks, so if this bank can give a commitment to keeping jobs in Australia, why can’t the other big banks,” FSU national secretary Leon Carter said.
Mr Narev said CBA would manage staff costs by natural attrition, or not replacing staff when they leave, as revenue growth slowed.
“We will manage that by definition first with natural attrition, which is about 3,000 people per year, (and) redeployment.”
On the future of interest rates for borrowers, Mr Narev said the days when banks’ interest rates moved in direct correlation to the RBA cash rate were over.
“People shouldn’t expect their mortgage rates to go up and down, strictly, speaking, in line with the OCR (official cash rate), but it continues to be a factor in the cost of our funding.”
A 25 per cent fall in bad debts expense drove CBA’s net profit 19 per cent higher to $3.624 billion for the six months to December 31.
Both revenue and costs rose four per cent, leaving interim cash profit, the bank’s preferred measure, seven per cent higher at $3.576 billion.
Shareholders will pocket a fully-franked interim dividend of $1.37, up from $1.32 a year earlier.
Analysts said the result was slightly ahead of consensus forecasts for a $3.529 billion cash profit, but earnings growth had slowed.
Deutsche Bank’s James Freeman noted the lower than expected dividend and declining margins across the Australian operation.
“Earnings growth is getting smaller and smaller, like underlying earnings, which means there’s only so much you can do before you have to really cut costs,” Bell Potter Securities’ analyst TS Lim said.
CBA’s average first-half net interest margin was 2.15 per cent, up three basis points on the previous corresponding period but down 10 basis points on the second half of 2010/11.
CBA’s shares gained 27 cents to $50.23.
