CBA's Q1 profit rises but so do its costs

CBA's quarterly profit has grown to $2.65 billion but operating expenses also rose four per cent, partly due to anticipated legal costs.

Commonwealth Bank of Australia has recorded a $2.65 billion first-quarter profit. (AAP)

Commonwealth Bank has lifted its first-quarter profit to $2.65 billion but costs are also higher and could rise further.

Australia's biggest bank said on Wednesday its unaudited cash profit for the three months to September 30 was six per cent higher than the average of each of the previous two quarters.

But operating expenses rose four per cent as CBA made provision for regulation and compliance costs, including those related to AUSTRAC's allegations of anti-money laundering and counter terrorism law breaches.

UBS analyst Jon Mott estimates the provision to be about $100 million, but warned CBA may be mistaken in the belief that it can deal with the costs in a single hit.

"CBA considers this to be a one-off and does not expect business-as-usual costs to increase," Mr Mott wrote in a note to investors.

"However, international experiences indicate that this may be very optimistic, with regulatory and compliance spend tending to settle at many multiples of original estimates."

CBA's provision does not include potential penalties that might result from the Federal Court proceedings brought against it by the regulator.

The bank said it is currently impossible to estimate what they might be.

Nonetheless, Mr Mott said CBA's trading update indicated a "reasonable" quarter.

Home lending rose at an annualised rate of 2.7 per cent, compared to the previous three months, although CBA said growth was managed within Australian Prudential Regulation Authority limits on investor and interest-only mortgages.

Rate hikes for those mortgages helped net interest margin improve on the 2.11 per cent reported for the second half of the 2016/17 financial year, although CBA's trading update did not say by how much.

The lender will give further details when it releases its half year earnings report in February.

Investors seemed to approve of the figures, driving CBA shares 2.7 per cent higher to $80.27 on Wednesday in a flat overall market.

The bank's first-quarter statutory profit, which includes one-off costs, was $2.8 billion on an unaudited basis.

CBA, which reported a record $9.9 billion full-year cash profit in 2016/17, said operating income grew four per cent against the average of the previous two quarters.

Mr Mott is forecasting a $10.27 billion cash profit for 2017/18.

Commonwealth Bank did not update investors on any progress in finding a replacement for chief executive Ian Narev, who is due to retire in the current financial year due to the fallout of the AUSTRAC allegations.