CBA's first-half boosted by mortgage surge

Commonwealth Bank's mortgage lending surge has underpinned an expectation-defying first-half result, even as the lender feels the heat from regulatory costs and a bushfire-related rise in loan impairments.

Shares in the nation's largest bank climbed to a near five-year high of $88.56 on Wednesday afternoon - adding $6.8 billion to the company's market value - after its $4.48 billion interim cash profit beat the $4.34 billion figure tipped by analysts.

Flat net operating income, higher expenses and an increase in loan impairments for the six months to December 31 did, however, weigh cash profit down by 4.3 per cent on last year's $4.68 billion.

The bank is holding its fully franked interim dividend flat at $2 per share, as forecast, while it flagged it was also considering returning excess capital to shareholders later in the year.

Crucially, CBA's home lending rose by 4.0 per cent - or $53 billion - for the six-month period, while business lending rose 3.0 per cent or $19 billion.

Loan impairment expenses jumped 12 per cent to $649 million, representing 17 basis points of gross loans after factoring in the summer bushfire catastrophe.

Chief executive Matt Comyn said the result belied an environment of low interest rates and relatively low credit growth, while he remained positive about the momentum of the economy despite the recent fire crisis.

The summer bushfires resulted in $83 million of insurance claims provisions at the bank during the first half, while fires and drought were also behind a $100 million loan impairment overlay.

"Clearly, in the near term, we'll (have) to deal with the impact from the drought, the bushfires and now global uncertainty around the coronavirus," Mr Comyn said in a presentation on Wednesday.

"We do expect that that's going to weigh on both sentiment as well as GDP in this quarter and in the next ... but we think the combination of both the recovery and rebuild, and also some of the underlying strength in the Australian economy, will start to come through in the back half of this calendar year."

He was also bullish about the prospects for the local property market and jobs figures.

"We've seen an improvement, certainly, in the housing market," Mr Comyn said.

"We've seen recent unemployment figures which have been very strong, in NSW some of the lowest unemployment rates since the 1970s."

Group net interest margin - the cost of funding loans compared with what it charges for them - was up one basis point at 2.11 per cent, while the bank's Common Equity Tier 1 ratio of 11.7 per cent is well above APRA's unquestionably strong 10.5 per cent benchmark.

CBA's statutory profit figure jumped 34 per cent for the half-year to $6.2 billion, driven by the gain on sale of Colonial First State Global Asset Management.

Operating income of $12.4 billion was flat on a year ago, while operating expenses increased 2.6 per cent to $5.4 billion due to wage inflation and higher IT, risk and compliance costs.

Risk and compliance spend increased to $196 million from $142 million last year, though remediation to wealth customers was reduced to $30 million from $279 million in the prior corresponding period.

Customer remediation charges were $639 million in the June half.

CBA on Wednesday also flagged a $500 million dividend reinvestment plan, while "active consideration" is being given to capital management.

Observers expect the bank to announce a share buyback or special dividend in August.

CBA said $630 million of the $2.7 billion remediation provisions announced since 2017 has been refunded to customers.

CBA BEATS H1 EXPECTATIONS

* Operating income flat at $12.42b

* Cash profit down 4.3pct to $4.48b

* Statutory net profit up 34pct to $6.16b

* Interim dividend unchanged at $2 per share, fully franked.

Austrlaian Associated PressBack to Breaking News

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