UPDATE 2.20pm Commonwealth Bank’s record $7.1 billion profit will benefit millions of Australian households, its chief executive says.
CBA set a record for an Australian bank with a $7.09 billion net profit for the year to June 30, up 11 per cent from the previous year.
"It is a big absolute number, but we are a big business,” chief executive Ian Narev said today.
"As it stands ... we are the fourth or fifth largest financial institution outside of China."
Analysts had expected the profit rise, but they were surprised by a 4 per cent increase in the bank’s dividend to $3.34 per share.
That amounts to $5.3 billion in payments to shareholders, or 75 per cent of CBA’s total income.
"The people who own this group ... 60 per cent of them are Australian households directly, that’s 800,000 Australian families,” Mr Narev said.
"Another 20 per cent of our shareholders are Australians who own them directly through their pension funds.
"So the shareholders who we are doing well for are millions and millions of Australian households.
"And on that basis I actually feel pretty good about the profit we make."
CBA’s profit was mainly boosted by the continuing fall in its provisions for bad debts, and was also helped by relatively lower costs.
CBA’s cash profit, seen as a better measure of underlying performance, was $7.11 billion in the year to June, up 4 per cent from $6.84 billion in the previous 12 months.
However 2 per cent income growth in the year to June, and a one per cent fall in the second half, reflected the impact of cautious consumers and businesses.
Bankwest, a wholly-owned subsidy of CBA, posted an 13 per cent rise in net profit for the year, due to stronger mortgage lending and a significant fall in the value of bad debt charges.
Mr Narev said the Australian economy remained strong, but the ongoing economic issues in Europe would result in slow revenue growth.
"We don’t yet see any signs for a catalyst for greater stability in Europe,” he said.
"Until that is resolved we are going to be in relatively subdued conditions."
Competition for deposits among Australian banks also caused a rise in CBA’s funding costs, despite its recent interest rate rises outside of the Reserve Bank’s cash rate cycle.
CBA’s net interest margin, a key measure of profitability on its loans, was down three basis points from a year earlier, at 2.09 per cent.
"Just because funding costs increase, competitive pressures sometimes do not enable you to increase your prices as much as you would like,” Mr Narev said.
But he said most of the recent rise in interest rates on deposit accounts had been covered by increases in its standard variable lending rates for mortgages.
Tony Farnham, an economist at Patersons brokers, said he expected interest rates would rise to cover higher funding costs.
"We anticipate that loan product re-pricing, including that in the politically sensitive mortgage segment, will continue to provide at least a partial offset (to higher funding costs),” he said.
CBA accounts for 25 per cent of the home lending market, with $351 billion in loans as of June 30.
Its shares closed 51 cents higher at $56.05.