Australia's CBA beats annual profit forecast, extends shares rally

By Byron Kaye and Sameer Manekar

SYDNEY (Reuters) -Commonwealth Bank of Australia, the country's biggest lender, said on Wednesday full-year profit fell less than analysts feared due to lower provisions for bad debts, and upped its final dividend, sending its shares higher.

The closely watched result entrenches CBA's new status as Australia's biggest listed company after a one-third share price rally since late last year added pressure to show it could prevail in a faltering economy.

Banks historically benefit from rising interest rates but have struggled to grow profit recently because of stubbornly high expenses and a price war sparked by home loan borrowers looking for a better deal. CBA is most exposed with a quarter of the country's A$2.2 trillion ($1.46 trillion) mortgage market.

"Households continue to respond to the higher prices, and I find it even harder than six months ago," CEO Matt Comyn said of inflation in the broader economy on an analyst call. "More spend is directed towards essentials and discretionary spend is being cut back."

Profit for the Sydney-headquartered company fell 2% to A$9.84 billion in the year to end-June, beating an LSEG estimate of A$9.68 billion, as loan impairment charges narrowed by 28% to A$802 million due to "robust" loan origination processes, the bank said.

CBA raised its dividend to A$2.50 per share, from A$2.40 a year earlier, taking the year's payout to a record A$4.65.

Shares of CBA were more than 1.2% higher by late afternoon, outpacing a broader index gain of 0.4% as analysts prepared to upgrade forecasts for the A$224 billion market capitalisation lender that recently overtook miner BHP to be the country's biggest company.

"We see potential for FY25F and FY26F consensus cash earnings to be upgraded," said Azib Khan, executive director at E&P Financial.

Net interest margin, a key metric of bank performance that compares interest received from loans with interest paid out to deposit-holders, rose from the first half to the second half, a sign that a protracted margin deterioration was being reversed, Khan added.

Citi analysts said previous profit forecasts for the bank might be "too pessimistic".

As Australia's banks resorted to offering cash handouts to sign mortgage borrowers refinancing from other lenders, CBA was first to say it was quitting the practice in 2023 in order to preserve margins. After a dip in market share, the bank said on Wednesday that it maintained share from December to June.

Though bad debt provisions fell, the bank said home loan payments more than 90 days late were at 0.65% of its total mortgages at the end of June, an increase of 13 basis points from December.

($1 = 1.5097 Australian dollars)

(Reporting by Sameer Manekar and Roushni Nair in Bengaluru; Editing by Anil D'Silva and Jamie Freed)