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Commonwealth Bank First Quarter Unaudited Cash Profit Rises 9.5%

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Commonwealth Bank of Australia
reported a 9.5 percent increase in first-quarter cash profit as
revenue rose and charges for bad debts fell.

Unaudited cash profit, which excludes one-time items, was
about A$2.3 billion ($2 billion) in the three months ended Sept.
30, the Sydney-based lender said in a statement today. Unaudited
net profit in the period rose 14 percent to A$2.4 billion.

Commonwealth Bank, the nation’s largest lender by market
value, and its main competitors are gaining from a sustained
fall in soured loans as businesses and retail customers repay
faster. The ratio of bad debt expenses to loans for the four
largest banks is the lowest since the mid-1990s,
PricewaterhouseCoopers LLP said in a note Nov. 3.

“Bad debt provisions for Commonwealth Bank came in lower
than our expectations,” said Simon Burge, the Sydney-based
chief investment officer at Above the Index Asset Management
Pty, who oversees about A$500 million including Commonwealth
Bank shares. “The lower bad debt cycle is staying low for
longer.” The fund manager increased its Australian bank
holdings in September, he said.

The bank’s shares rose 0.3 percent to A$80.98 at 10:12 a.m.
in Sydney, compared with a 0.1 percent fall for the benchmark
S&P/ASX 200 Index. (AS51)

Bad Debt Charge

CBA set aside A$198 million to cover non-performing loans
in the quarter, the lender said in the statement. That compared
with A$228 million a year earlier. Such provisions rose 6.4
percent in the six months to June 30, the first increase since
the six months to Dec. 31, 2012, according to filings.

Net interest margin, a measure of lending profitability,
dropped marginally as increased competition more than offset
lower funding costs, the lender said in today’s statement.

The focus is on profitable mortgage growth, CBA said. The
bank expanded home loans by 1.3 percent between June and
September, compared with 1.74 for all banks, according to data
from the Australian Prudential Regulation Authority.

Customer deposits made up 63 percent of Commonwealth Bank’s
total funding as of Sept. 30, down a percentage point from three
months earlier, the lender said. It raised A$12 billion from the
bond markets in the quarter, it said.

Common equity Tier 1 capital, a measure of a bank’s ability
to absorb future losses, was 8.6 percent after paying out the
final dividend, compared with 9.3 percent three months earlier,
the lender said.

Capital Requirements

The government’s financial system inquiry has sought views
on increasing capital requirements for banks considered
systemically important. The review may require the major banks
to hold more funds and the four largest lenders may need as much
as A$68.7 billion in extra capital, UBS AG said in a Sept. 8
note.

Commonwealth Bank is the last of the nation’s so-called
four-pillar banks to post results in the past week. National
Australia Bank Ltd. (NAB)
reported a 9.8 percent drop in 2014 cash
profit. Australia & New Zealand Banking Group Ltd. (ANZ) and Westpac
Banking Corp. (WBC)
reported second-half cash earnings rose 9 percent
and 8 percent respectively.

Commonwealth Bank shares have risen 4.1 percent this year,
the second-worst performer among the four biggest lenders. The
benchmark S&P/ASX 200 Index has climbed 3 percent.

To contact the reporter on this story:
Narayanan Somasundaram in Sydney at
nsomasundara@bloomberg.net

To contact the editors responsible for this story:
Chitra Somayaji at
csomayaji@bloomberg.net
Darren Boey, Edward Johnson

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Commonwealth Bank First Quarter Unaudited Cash Profit Rises 9.5%

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