Commonwealth Bank of Australia (CBA) says the outlook for year ahead is modest due to weak demand for loans and global market volatility.
CBA’s somewhat restrained outlook came after the bank reported a 13 per cent lift in net profit to a record $6.4 billion for the year to June 30.
Chief executive Ralph Norris also said the current volatility on world markets could make it more expensive to source funding.
However, he said the bank had much of its funding already secured, which would allow it to avoid potential spikes in funding costs in the short-term.
“Ongoing offshore instability continues to impact the domestic economy and has the potential to place further upward pressure on wholesale funding costs for domestic banks,” Mr Norris said.
“The 2011 financial year has been characterised by subdued system credit growth and intense competition,” Mr Norris said.
“At this stage, there is nothing to suggest that the 2012 financial year will see any material improvement on this front.”
Deposits made up 61 per cent of CBA’s funding by the end of June, having increased by $26 billion over the 12 months to a total $349 billion.
Cheaper debt sourced before the global financial crisis (GFC) was still being renewed by CBA at more expensive rates but that is expected to peak in January.
“The pressure on interest rates for us at the moment is not as acute as it was,” Mr Norris told journalists on Wednesday.
“We do have some upward pressure but I think it is fair to say we are endeavouring to do our best to manage our book as best we can.”
CBA management was loath to comment on future interest rate movements, saying they did not want to be accused of price signalling.
The bank said its cash profit was up 12 per cent in the year to $6.835 billion, driven by the continuing fall in bad debts since the GFC and improved interest margins.
Net interest income increased seven per cent from the previous year to $12.66 billion, and the net interest margin rose from 2.13 per cent to 2.19 per cent.
Most of the bank’s lending growth was due to the bank’s higher standard variable home loan rates since November last year, although it was partially offset by declines in rates for business loans because of weak demand.
Loan impairments declined to $1.28 billion, from $2.08 billion a year earlier, but the decline was slower in the second half because of the effect of higher interest rates and natural disasters around Australia earlier in the calendar year.
The profit was in line with market expectations and analysts were expecting CBA to report weak credit demand.
“The result confirms CBA’s blue-chip status, which to me means a business can grow shareholder returns even in tough times,” Morningstar Equities analyst David Walker said.
“The business performed well despite subdued credit growth and strong competition, especially in home loans.”
CBA gained 95 cents, or two per cent, to $48.23, on a day the three other major banks all posted gains of more than four per cent.
