Feb 14, 2024: Commonwealth Bank of Australia (CBA) issued a warning on Wednesday about potential downside risks looming over the Australian economy due to persistently high interest rates and inflation. The caution came as the country’s biggest lender reported a drop in its first-half profit, albeit surpassing expectations.
CBA’s profit announcement follows remarks from mortgage lending competitor Macquarie Group, which noted gaining market share, setting the stage for a challenging year for Australia’s major banks amid lower margins and fees.
CBA’s CEO, Matt Comyn, highlighted the lagged impact of interest rate hikes on households and businesses, anticipating ongoing financial strain and a rise in arrears and impairments throughout 2024. Reflecting these concerns, CBA’s shares declined by 2.4%, contributing to a broader downturn in the Australian index.
Comyn emphasized the growing burden of living costs on consumers and businesses, leading to reduced spending. He expressed expectations of economic growth slowing to below 1.5% and envisioned inflation and interest rates easing later in the year.
Moody’s Investors Service Vice President Daniel Yu noted the earnings challenges facing Australian banks due to higher costs and shrinking net interest margins (NIM). These headwinds are anticipated to persist in 2024 amid intense competition and rising operating expenses fueled by inflation.
CBA’s cash profit for the six months ending December 31 declined by 3.1% to A$5.02 billion ($3.24 billion), exceeding market expectations. Despite the profit dip, CBA’s shares had surged over 20% since November, driven partly by investors seeking refuge from China’s volatile markets and anticipating interest rate cuts.
Analysts emphasized the importance of CBA delivering robust results given its recent share price rally, underlining the bank’s significant valuation driven by consistent profitability and a dominant position in Australia’s deposit market.
