A WEEK after disappointing borrowers by failing to pass on the RBA’s full rate cut, Australia’s largest bank has reported a three per cent lift in its full-year cash profit to $9.45 billion.
Commonwealth Bank’s statutory profit for the 12 months to June 30 was up two per cent at $9.2 billion, but its loan impairment expense jumped 27 per cent from a year ago to $1.26 billion, largely due to exposures to the resources, commodity and dairy sectors.
While the bank’s net income from interest rose seven per cent to $16.935 billion, its net interest margin fell two basis points to 2.07 per cent.
The bank will pay a fully franked final dividend of $2.22 per share.
“In the banking businesses, net interest income growth was supported by continued home and business lending and strong deposit growth, particularly in transaction banking,” Commonwealth Bank chief executive Ian Narev said.
Mr Narev said resources and construction and services had underpinned GDP growth, but “ongoing economic strength will require a lift in the low rates of nominal growth”.
“Income growth inside and outside Australia remains weak, so people are not feeling better off,” he said. “When combined with ongoing global economic and political uncertainty this makes households and businesses cautious, and hesitant to respond to monetary stimulus.
“At CBA, we are cognisant of the combined impact of weaker demand, strong competition and increasing regulation. An ongoing focus on productivity and credit quality will be important.”
Last week, the Reserve Bank slashed the official cash rate by 25 basis points to its lowest level ever, but the major banks caused a political furore by failing to pass on the full cut to borrowers.
Commonwealth Bank instead announced it would reduce its standard variable mortgage rate by 13 basis points to 5.22 per cent from August 19.
That means customers will save $38.41 a month on a $500,000 loan, $30.73 on a $400,000 loan or $23.05 on a $300,000 loan, according to a Canstar analysis.
“While the circumstances of each RBA rate decision will always vary, we’ve carefully considered the current environment and the needs of both borrowers and savers,” Commonwealth Bank group executive of retail banking services Matt Comyn said last week.
“Today we’ve reduced our mortgage rates to a record low while increasing term deposit rates to provide an opportunity to the millions of Australians who rely on savings.”
Mr Comyn cited increased funding costs and capital requirements, and the need to “balance the needs of both customers and shareholders”, as the reason for the bank’s position.
He said the three previous rate cuts over the past two years had saved the bank’s owner occupier home loan customers about $939 a year on the average loan of $350,000.
The failure of the major banks to pass on the rate cut led to Prime Minister Malcolm Turnbull announcing the heads of the big four would be required to “front up” to a parliamentary committee every year to explain their interest rate policy.