CBA annual profit up 20 per cent

11 Aug 2010, 11:53 am   -   Source: AAP
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Analysts say the result was partly driven by an increase in market share of the big four banks. (AAP)

Analysts say the result was partly driven by an increase in market share of the big four banks. (AAP)

In a sign of an improving economic picture, the Commonwealth Bank has posted a record profit of $6.1b

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Commonwealth Bank of Australia Ltd (CBA) has posted a 20 per cent increase in full year net profit to $5.66 billion, but issued a cautious outlook due to global economic uncertainty.

Australia's biggest bank said lower business and consumer confidence, due to concerns about the strength of economic recovery in the United States and Europe, had hurt the momentum of its business in the second half of the financial year.

"As a result, it is appropriate to maintain a degree of caution about the prospects for our business for the coming year," chief executive Ralph Norris said in a statement.

"We intend to retain conservative capital and liquidity settings for the foreseeable future." CBA reported a net profit of $5.664 billion for the 12 months to June 30, up from $4.723 billion in the prior year.

Cash profit, the bank's preferred measure of earnings, jumped 42 per cent from the previous year to $6.101 billion.

Shares in CBA fell $1.19, or 2.29 per cent, to $51.54 by 1037 AEST. The profit growth came on the economic recovery from the global financial crisis, which saw net interest income gain 11 per cent from the previous year to $11.868 billion.

Other income fell three per cent from the previous year to $4.112 billion, due to lower trading and ATM fee income, and lower credit card loyalty fees.

Total income was up nine per cent from the previous year at $19.059 billion. CBA declared a final dividend of $1.70 per share fully franked, taking the full year payment to $2.90, compared with $2.28 the year before.

CBA said its capital position remained strong with its Tier 1 capital ratio at 9.15 per cent.

Chief financial officer David Craig said lending conditions had been soft in the second half of the financial year.

"Business credit hasn't yet picked up. We have been waiting for that to happen, but it hasn't happened yet," he said.

"Home lending has slowed a bit. "It's still steady, but it's not as strong as it has been."

Funding costs would continue to grow due to volatility in international credit markets, Mr Craig said. "The trajectory is unfortunately going to increase," he said.

Asked whether CBA would move rates outside of changes made by the Reserve Bank of Australia, Mr Craig said: "We can't possibly predict that."

Bad debt charges were down and had passed their peak, he said. Impairment charges for the year were $2.08 billion, compared to $3.05 billion in the previous corresponding period.

"That hardship and those arrears seem to be dissipating, so I think we are past the worst in that area," Mr Craig said.

The bank said it retained its conservative approach to provisioning, which was at $5.45 billion as of June 30, including a management overlay of $1.2 billion.

That was an increase from $4.95 billion a year earlier.

Among its divisions, CBA's retail bank increased cash profit by 17 per cent to $2.461 billion, on home loan volume growth driven by competitive customer interest rates, the bank said.

The business banking division increased cash profit 21 per cent to $893 million, driven by strong growth in business lending.

The institutional bank significantly increased cash profit to $1.182 billion, mainly as a result of lower impairment charges.

The wealth management division increased underlying profit 15 per cent to $592 million as volumes grew and investment markets improved.

Funds under administration increased six per cent to $180 billion by June 30.

The New Zealand division's cash profit declined 14 per cent as credit markets tightened, leading to higher funding costs.

The recession in NZ had also hit the banking and insurance businesses.

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