Australia's largest bank has posted a record $10.2 billion net profit off the back of higher interest rates. That's an increase of five per cent on the Commonwealth Bank's result last year.
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00:00 This profit report from CBA occurred over the financial year ending 30th of June this
00:07 year.
00:08 So it really encompasses that 400 basis points or 4 percentage points of increases from the
00:14 Reserve Bank since May last year.
00:16 And the benefit of those rising cash rates has been seen in the profit numbers.
00:21 As you say, CBA has reported a record statutory net profit of $10.2 billion up 5%.
00:30 The cash profit was a similar number up 6%.
00:34 And it's the bank's net interest margin that has been underpinning the growth in this.
00:39 That is the difference between the money it makes on the interest and the money and the
00:43 interest it pays to lend out.
00:46 So that was up 17 percentage points, much higher than it was the same time last year.
00:51 And that is a big jump in banking terms, 17 percentage points.
00:55 However, the bank has been quite keen to stress that this was somewhat offset, if you like,
01:02 by loan impairment expenses.
01:05 And that was up to one that rose $1.7 billion, which reflected the ongoing cost of living
01:12 pressures that we're seeing.
01:14 When it comes to the dividend, which is very important for investors, this stock is held
01:17 very widely across superannuation portfolios and by regular people in the community, as
01:23 well as big funds.
01:25 The dividend is up 30 cents for the final payment, which is $2.40, taking the total
01:30 dividend payout to $4.50 for this year.
01:35 In terms of the other news that's in this result, the company says it will buy back
01:40 an additional $1 billion worth of stock from the market.
01:45 So that is good news for shareholders.
01:47 It's very likely the share price will rise today unless investors focus on the outlook,
01:52 which CBA has essentially said is going to deteriorate.
01:55 So this profit result was really boosted by the first half.
01:58 The second half, we did start to see things decline.
02:01 The net interest margins started to ease off, bad debt started to rise a little bit more.
02:06 And CBA has warned that for the next financial year, competition, customer deposit switching
02:11 and higher wholesale funding costs could impact its margins, partly offset by the benefit
02:16 of these higher than average or cash rates.
02:20 So it will be a question as to whether it can hold on to these types of gains.
02:25 But there is no doubt the Australian economy is slowing and CBA is going to face a bit
02:29 of a rockier year ahead.
02:31 So further to that, what do these CBA figures tell us about the health of the housing market?
02:35 Yeah, well, this is really important because the CBA is the biggest home lender in Australia.
02:39 So it has quite a good data set on what's happening.
02:43 And of course, we know that there's 880,000 fixed loans rolling off this year.
02:48 Many have already occurred.
02:49 This is nationwide, not just for the CBA.
02:52 And also then another 450 next year.
02:54 So we're midway through the rest of those fixed rates rolling off.
02:59 Now, in its investor presentation, CBA says it estimates 3.4% of its variable rate owner-occupier
03:06 borrowers who took out their loans within the past five years are in negative cash flow
03:12 at the current interest rate level.
03:14 So that essentially means they are spending more than is coming into their household.
03:20 That might have been helped by savings buffers, but obviously not a sustainable position to
03:25 be in.
03:26 So if we see more of the fixed rates roll off onto variable, that number could potentially
03:31 rise.
03:32 CBA says 22% of its customers are just on time with their mortgage repayments and a
03:37 third of the customers are less than three months ahead on their repayments.
03:41 But the good news is the bank says about 39% of its customers were at least a year ahead
03:47 in their mortgage repayments.
03:50 And then there's been a slight increase in impaired home loans to $1.8 billion.
03:56 But this was driven by an increase in New Zealand where rates are already a lot higher
04:00 and they did have a flooding event there.
04:03 But essentially, given the outlook, it is likely that this position will deteriorate
04:08 further for CBA.
04:09 It's just to what extent.
04:11 But certainly things are starting to - the impact of higher rates are starting to be
04:17 felt at least a little by some customers at CBA.
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