Australia's biggest bank warns of economic downside as profit dips
By Sameer Manekar and Praveen Menon
SYDNEY (Reuters) -Commonwealth Bank of Australia on Wednesday warned of downside economic risks building in Australia from continued high interest rates and persistent inflation, as the country's largest lender posed a drop in its first-half profit.
The bank's profit, which still beat expectations, came a day after mortgage lending challenger Macquarie Group (OTC:MQBKY) said it was gaining market share and signals a tough year for Australia's «Big Four» banks as they enter an environment of lower margins and fees.
«As cash rate increases have a lagged impact on households and business customers, we expect financial strain to continue in 2024, with an uptick in our arrears and impairments,» CBA CEO Matt Comyn said in a statement.
Shares of CBA fell 2.4%, with the broader Australian index down about 1% as of 0255 GMT.
Comyn said in a briefing after the results that the rising cost of living was being felt an increasing number of households and businesses, and as a consequence customers had reduced their spending.
«Inflation is falling but still remains too high,» Comyn told analysts and investors on the call.
«And we expect economic growth to fall below 1.5% this year. Our base case remains a soft landing, and we're expecting these pressures to ease as inflation and interest rates start coming down later this year,» he said.
CBA's profit reflects the earnings challenges Australian banks are facing from higher costs and a contraction in net interest margins (NIM), Daniel Yu, Vice President for Moody’s Investors Service said in a note.
«We expect these headwinds to persist in 2024 as tight competition for both lending and, deposits weigh on banks’ NIMs and operating costs increase
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