* A$4.48 bln cash profit beats average expectation of A$4.33 bln
* Bank declares flat dividend but no share buy-back announced
* Grows home loans by 4%, CEO Comyn expects "to lend more"
* Remains optimistic on economy, despite fires, coronavirus-CEO (Adds shares in paragraph 8)
By Paulina Duran and Rashmi Ashok
SYDNEY, Feb 12 (Reuters) - Commonwealth Bank of Australia CBA.AX , the country's biggest lender, posted a smaller-than-expected drop in half-year cash earnings on Wednesday, as strong home lending helped offset a hit from higher insurance payouts and lower fees.
Despite beating market expectations with a 4.3% fall in cash profit from continuing operations, a measure that excludes one-offs and non-cash accounting items, the lender disappointed some investors in the market who were expecting a larger cash return.
"The result is better than we had expected," said Sean Sequeira, chief investment officer of Australian Eagle Asset Management.
"The market was looking for a buy back or the payment of a special dividend in the result but the board has reserved judgment on that," he added.
While the bank declared a flat interim dividend of A$2 per share, it said its "strong" capital position would allow it to consider future "capital management initiatives".
Cash profit of A$4.48 billion ($3.01 billion) for the six months to Dec. 31, beat the A$4.33 billion expected by six analysts polled by Reuters.
Bank of America (NYSE:BAC) analysts said the "result should be well received" given the earnings beat and the strong capital position of the bank.
Commonwealth bank shares rose 2.02% on Wednesday morning following the result, beating the broader market .AXJO , which was 0.48% higher.
Profit was hit by a drop in non-interest income due to bushfire-related insurance payouts and reduced fees for wealth management customers - a continued effect of the Royal Commission inquiry into the financial sector.
Home loans, the main earnings generator for Australian banks, grew about 4% during the first half, helping offset the sharp drop in insurance and wealth management income.
The Reserve Bank of Australia (RBA) cut interest rates thrice in 2019 to a record low, which helped a struggling property market stage a robust recovery in the second half of 2019, with home prices and home building approvals rising. the economic impact of a long drought, horrific brushfires and global uncertainty around the new coronavirus, Chief Executive Officer Matt Comyn said the bank expected the momentum in home lending to continue.
"We remain optimistic about the Australian economy and outlook," Comyn said. "We've seen an improvement, certainly, in the housing market."
In a separate statement, he said the bank had "both the capacity and the appetite to lend more."
Net interest margin (NIM), a closely watched gauge of profitability showing the difference between interest paid and earned, rose 1 basis point to 2.1% from the second half of 2019.
However, the lender said it expected the previously announced cash rate reductions to hit NIM by 8 basis points by Jun. 30 2021.
Net interest income rose 1.7% to A$9.29 billion for the six months ended Dec. 31.
($1 = 1.4894 Australian dollars)