Aussie lender CBA warns of ‘financial strain’ from high rates in 2024

By Thomson Reuters Feb 13, 2024 | 2:46 PM

By Sameer Manekar

(Reuters) -Commonwealth Bank of Australia on Wednesday warned that lagged effect of high interest rates will continue to exert financial strain on household and business customers in fiscal 2024, and reported a drop in first-half cash earnings due to tighter margins.

The bank also warned that downside risks to the Australian economy were building as slowing demand and persistent inflation impacted Australian businesses, with ongoing geopolitical tensions further adding to the uncertainty.

“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,” CEO Matt Comyn said.

The country’s biggest lender in terms of market valuation said its cash profit fell to A$5.02 billion ($3.24 billion) for the six-month period ended Dec. 31, compared with A$5.18 billion a year earlier. It beat a Visible Alpha consensus of A$4.95 billion, according to Citi.

CBA, the supplier of a quarter of Australia’s A$2 trillion mortgage market, was pressured by intense home loan and deposit price competition which impacted margins. That, along with higher expenses due to inflation impacted its first-half cash earnings.

“Our lower cash profit reflects cost inflation and a competitive operating environment,” Comyn added. “Australian households continue to feel pressure in the current environment, with many cutting back to adjust.”

CBA’s net interest income from continuing operations on cash basis slipped 2% to A$11.40 billion as its net interest margin – a measure of profitability – declined 11 basis points to 1.99%.

The bank’s common equity tier 1 capital ratio stood at 12.3% as at December-end, slightly above 12.2% as at June-end. It declared an interim dividend of A$2.15 per share, up from A$2.10 last year.

($1 = 1.5504 Australian dollars)

(Reporting by Sameer Manekar and Roushni Nair in Bengaluru; Editing by Anil D’Silva and Marguerita Choy)