CBA shares rocket as profit beats expectations

Commonwealth Bank chief Matt Comyn has tipped a short cycle of interest rate hikes that would have a slight effect on the property and mortgage markets, saying the banking giant expects only one more interest rate rise from the Reserve Bank.

Delivering a $5.4 billion half-year profit result that beat market expectations, Comyn on Wednesday said inflation was putting “upward pressure” on interest rates, but it would be a “relatively brief” period of rate hikes from the central bank.

The profit result sparked a surge in CBA shares, which jumped 7.8 per cent in early afternoon trade as analysts said CBA’s charges for bad debts were lower than the market had forecast.

Comyn also indicated he was open to potential changes to the capital gains tax regime to support housing affordability, following reports Treasurer Jim Chalmers is considering a cut to capital gains concessions in the lead-up to this year’s budget. Comyn stressed any such change should be part of a wider package.

Speaking to this masthead, Comyn said the bank was forecasting one more possible rate rise this year, which he acknowledged would be unwelcome news to borrowers who are stretched.

“We’ve seen one rate increase, we expect that there’ll be perhaps one more, but we don’t think more than that, and then I think there’ll be sort of pressure to go back into an easing cycle beyond that,” Comyn said.

Comyn said the impact of higher rates on housing and home loans would be “slight”, flagging credit growth and house price growth of about 5 per cent this year.

“I don’t think it’s going to have a really significant impact. For households that have been… stretched, clearly, the prospect of increasing rate hikes, is not something that they’re looking forward to, but I think it will be a relatively brief period of interest rate hikes.”

On the prospect of changing the capital gains tax regime, Comyn acknowledged the importance of “intergenerational equity” and said it would be appropriate to look at the issue as part of a wider discussion about taxation. He also highlighted the need for more housing supply and the growing tax burden on working Australians over time.

“Without having any of the specifics, I could envisage that [changes to capital gains tax rules] would be, an appropriate measure to look very closely at,” he said.

The comments came as CBA’s December half results showed fewer customers were struggling with their home loan repayments, while the banking giant expanded its vast portfolio of home loans and deposits.

Cash net profit rose by 5 per cent for the December half compared with the same half a year earlier, beating analyst expectations.

In a sign of its confidence in the outlook, CBA said it would raise its interim dividend by 4 per cent to $2.35. Analysts had expected first-half profits of about $5.2 billion and a dividend of $2.31.

CBA and its rivals last week passed on the RBA’s rate rise to their home loan customers in full, and analysts say the rises are likely to act as a tailwind to bank profits.

One in four Australian home loans is with CBA, a market share the bank held in the latest half, while its share of household deposits edged up to 26.6 per cent.

The bank has been expanding aggressively into business banking, an attractive market for banks, and in the half CBA grew its business loans and deposits by more than the industry average.

Comyn said CBA customers had been supported by lower rates and the strong labour market, and the bank reported lower costs for impaired loans and a fall in home loan arrears.

Despite ongoing cost-of-living pressure on many households, CBA said the share of home loan customers behind on repayments had edged lower in the period, thanks to lower interest rates. It said 87 per cent of its customers were ahead of their scheduled repayments.

A key focus for investors is the bank’s net interest margins – which compare funding costs with what the bank charges customers – and CBA reported a lower margin of 2.04 per cent compared to the June half.

Across the banking industry, margins have been pressured by stiff competition in home loans, where Macquarie has been rapidly expanding its share. Comyn acknowledged it was closely watching the competitive backdrop: “We continue to watch the competitive intensity and its implications across the financial system. We are well placed to compete effectively and will continue to adjust our settings as appropriate,” he said.

Citi analyst Thomas Strong said CBA’s margin beat market expectations, while its bad debt charges of $319 million were “much better than anticipated”. Strong said the profit result reflected the underlying health of the Australian economy, and it boded well for the full-year.

The banking giant’s operating costs rose 5 per cent, an increase it said was driven by higher investment in technology, inflation and some new hiring. CBA’s full-time staffing ranks rose 1 per cent during the six-month period, with the bank employing slightly more than 51,600 people.

CBA is regarded as the technology leader among the big four banks, and it said investment spending rose 10 per cent in the half to $1.2 billion, as it sought to bolster its artificial intelligence capabilities.

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