Commonwealth Bank posts record $10.16bn profit amid rising stress for borrowers

Australia’s biggest lender, Commonwealth Bank, has posted a record $10.16bn cash profit, even as more of its customers succumb to rising borrowing rates, prompting a sharp increase in bad debts.

The bank’s 2022-23 results were 6% higher than a year earlier, buoyed by expanding profit margins generated during a period of fast-rising interest rates.

CBA chief executive, Matt Comyn, said that while the economy had been resilient, there was evidence of stress among customers.

“There are signs of downside risks building as rising interest rates have a lagged impact on mortgage customers and other cost-of-living pressures become a financial strain for more Australians,” Comyn said.

He said consumer demand was moderating and economic growth slowing, but immigration was providing a “structural tailwind for the economy”.

Loan impairment expenses increased sharply by $1.5bn, which CBA attributed to cost-of-living pressures and rising borrowing costs.

The number of customers who are more than 90 days in arrears increased across the bank’s credit cards, personal loans and home loan segments, although they are still at modest levels.

The rise in bad debts coincides with a series of rate hikes, designed to tame inflation, that increased the Reserve Bank’s cash rate from 0.1% to 4.1% since May last year.

This has pushed most mortgage rates well above 6%, with recent first home buyers and older Australians retiring with mortgages the most affected.

CBA’s results show how the effects of rising living costs are unevenly distributed across society, with customers aged under 35 reporting reduced levels of savings, at the same time as older cohorts boost their deposit accounts.

CBA’s chief gauge of profitability, net interest margins, were up 17 basis points to 2.07%, representing a historically healthy level.

The banking sector has been able to lift margins through the controversial practice of increasing borrowing rates at a faster pace than deposits, attracting political attention.

Margin increases have, however, eased in recent months, likely signalling a peak in profitability. As the pace of rate hikes slow, the banking sector has turned its gaze to new customers to maintain profit margins.

Comyn said at a briefing on Wednesday that profits were not out of the ordinary.

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“Our profitability has fallen substantially in the last decade and is currently lower than a number of international markets,” he said.

The Labor senator Tony Sheldon said on Wednesday CBA had revealed a record profit at the same time as it was cutting hundreds of jobs and employees complained about workload and staffing issues.

Greens Senator Mehreen Faruqi described the profit result as “obscene” when speaking to the ABC on Wednesday.

CBA announced a new buyback, and it will pay a final dividend of $2.40 a share, taking the total dividend for the year to $4.50 a share, up from $3.85 a share in 2022.

Its shares were up by more than 2% in early trading, and are pushing towards record levels reached earlier this year.

The banking arm of Brisbane-headquartered insurer Suncorp recorded a 27.7% lift in net profit to $470m backed by a strong increase in home lending, according to results released on Wednesday.

The mid-tier lender wants to sell its banking arm to ANZ, but the transaction has been blocked by the competition regulator over concerns it would “further entrench an oligopoly” in a sector already dominated by four main players.

Suncorp said it was confident in the merits of the transaction and that it would join ANZ to challenge the regulator’s decision through a tribunal process.