Commonwealth Bank of Australia sees slowest profit growth since 2009 as bad-debt charges climb

 Commonwealth Bank of Australia posted the slowest profit growth since 2009.
Commonwealth Bank of Australia posted the slowest profit growth since 2009. PHOTO: REUTERS

SYDNEY (BLOOMBERG) - Commonwealth Bank of Australia, the nation's biggest lender, posted the slowest profit growth since 2009, as earning at most units declined and bad-debt charges jumped amid a downturn in commodities.

Cash profit, which excludes one-time items, rose 3 per cent to A$9.45 billion from A$9.14 billion a year earlier, the lender said in a regulatory filing on Wednesday (Aug 10). Though earnings climbed to a record for the seventh consecutive year, it was the slowest annual profit growth since a drop in the measure in 2009 and compares with the A$9.5 billion mean estimate of 13 analysts, according to data compiled by Bloomberg.

Australia's biggest banks are drawing the curtain on a streak of record profits bolstered by foreign lenders exiting the market, declines in impairments to unprecedented lows and cost cuts. The nation's big four lenders are also facing a regulatory clampdown on mortgages to combat runaway housing prices and bracing themselves to meet demands to boost capital and liquidity.

"The headwinds faced by Australian banks are well documented," David Ellis, a Sydney-based analyst at Morningstar Inc., said by phone. "It's a pretty solid result in challenging conditions and I expect the bank to resort to a wide range of initiatives including cost cuts and interest-rate changes to maintain profit growth."

Profit fell at all units except in the retail lending, and business and private banking divisions, Commonwealth Bank said. The retail banking unit's profit rose 11 per cent, while earnings from its institutional banking and markets business declined 9 per cent. Wealth-management income dropped 6 percent, the bank said.

"Income growth inside and outside Australia remains weak, so people are not feeling better off," chief executive officer Ian Narev said in the statement. "When combined with ongoing global economic and political uncertainty this makes households and businesses cautious, and hesitant to respond to monetary stimulus."

The Reserve Bank of Australia last week dropped its cash rate by a quarter point to an unprecedented low of 1.5 per cent to stoke inflation and wage growth.

Commonwealth Bank shares rose 0.1 per cent as of 10:52 am in Sydney. They have dropped 8.2 per cent this year compared with a 7.6 per cent decline in the bank index and a 4.6 per cent increase in the benchmark S&P/ASX 200 Index.

Bad-debt charges rose 27 per cent from a year earlier to A$1.26 billion, due to higher provisioning for its exposure to the resources, commodity and dairy sectors, it said.

Net interest margin, a measure of lending profitability, fell to 2.07 per cent from 2.09 percent a year earlier.

The common equity Tier 1 ratio, a measure of a bank's ability to absorb future losses, rose to 10.6 per cent at the end of June from 10 per cent three months earlier, Commonwealth Bank said. It raised A$5.1 billion last year by selling new shares to meet new regulatory requirements.

Commonwealth Bank's business year ends in June, compared with September for its main competitors. Australia & New Zealand Banking Group on Tuesday said its cash profit in the first nine months slipped 3 per cent. National Australia Bank reports its quarterly update on Aug 15. Westpac Banking Corp doesn't provide one.