Updated ,first published
Commonwealth Bank’s half-year results have blitzed market expectations and sparked a euphoric share price rally, after the banking giant notched up $5.4 billion in profits and held its dominant position in domestic banking.
CBA, which had a rare year of underperformance on the sharemarket last year, on Wednesday reported 6 per cent cash profit growth in the December half, as it also rewarded shareholders with a larger-than-expected dividend.
The bank also reported fewer customers were struggling with their loan repayments, and said the economy had strengthened thanks to higher consumer spending and strong investment, including in artificial intelligence and the energy transition.
Investors cheered the CBA numbers, sending its share price soaring as much as 8 per cent, as investors said the results had allayed fears about the threat from fierce competition in home loans and mortgages.
Opal Capital chief investment officer Omkar Joshi said CBA shares had taken off as investors had been relieved by the banking giant’s strong margins, better-than-expected earnings growth and low bad debts.
Joshi said big companies were being rewarded by the market when they beat expectations and also punished when they missed expectations during this reporting season.
“There was nothing to fault in the result, and CBA shares have underperformed going into the result,” he said.
Despite fierce competition from Macquarie, which is expanding aggressively in retail banking, CBA held its market share in home loans at more than 25 per cent, while its share of household deposits increased to 26.6 per cent. It also lifted its share further in the lucrative business banking market.
With Macquarie growing rapidly in household deposits – the main source of funding for banks – CBA chief executive Matt Comyn said it was watching rivals closely, but its strong deposit growth showed it had been able to compete while delivering returns.
“In this particular period I think it demonstrates our ability to compete very effectively and deliver service excellence to our customers and to deliver a reasonable and sustainable rate of return to our shareholders,” Comyn said.
The results come after the Reserve Bank last week raised interest rates for the first time in more than two years, but Comyn tipped a short cycle of interest rate hikes that would have a slight effect on the property and mortgage markets.
Speaking to this masthead, Comyn said the bank was forecasting one more possible rate rise this year, which he acknowledged would be unwelcome news to borrowers who are stretched.
“We’ve seen one rate increase, we expect that there’ll be perhaps one more, but we don’t think more than that, and then I think there’ll be sort of pressure to go back into an easing cycle beyond that,” he said.
Comyn said the impact of higher rates on housing and home loans would be “slight”, flagging credit and house price growth of about 5 per cent this year.
He also indicated he was open to potential changes to the capital gains tax regime to support housing affordability, following reports Treasurer Jim Chalmers is considering a cut to capital gains concessions in the lead-up to this year’s budget, but stressed any such change should be part of a wider package.
When asked about the prospect of changing the capital gains tax regime, Comyn acknowledged the importance of “intergenerational equity” and said it would be appropriate to look at the issue as part of a wider discussion about taxation. He also highlighted the need for more housing supply and the growing tax burden on working Australians over time.
“Without having any of the specifics, I could envisage that [changes to capital gains tax rules] would be an appropriate measure to look very closely at,” he said.
In a sign of its confidence in the outlook, CBA said it would raise its interim dividend by 4 per cent to $2.35.
Despite ongoing cost-of-living pressure on many households, CBA said the share of home loan customers behind on repayments had edged lower in the period, thanks to lower interest rates. It said 87 per cent of its customers were ahead of their scheduled repayments.
A key focus for investors is the bank’s net interest margins, which compare funding costs with what the bank charges customers, and CBA reported a lower margin of 2.04 per cent compared to the June half. It said margins were flat on an underlying basis.
Across the banking industry, margins have been pressured by stiff competition in home loans, where Macquarie has been rapidly expanding its share.
Citi analyst Thomas Strong said CBA’s margin beat market expectations, while its bad debt charges of $319 million were “much better than anticipated”. Strong said the profit result reflected the underlying health of the Australian economy, and it boded well for the full-year.
The banking giant’s operating costs rose 5 per cent, an increase it said was driven by higher investment in technology, inflation and some new hiring. CBA’s full-time staffing ranks rose 1 per cent during the six-month period, with the bank employing slightly more than 51,600 people.
CBA is regarded as the technology leader among the big four banks, and it said investment spending rose 10 per cent in the half to $1.2 billion, as it sought to bolster its artificial intelligence capabilities.
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Clancy Yeates is deputy business editor. He has covered banking and financial services, and was previously national business correspondent in the Canberra bureau.Connect via X or email.