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UPDATE 2-Australia's CBA Q1 profit drops 16% as record-low rates hit margins

Published 11/11/2020, 08:56 am
Updated 11/11/2020, 11:12 am
© Reuters.
CBA
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* Cash profit A$1.8 bln

* Home and business lending jumps A$7 bln

* Net interest margin falls (Adds details on loan growth, margin, analyst reaction)

By Paulina Duran

SYDNEY, Nov 11 (Reuters) - Commonwealth Bank of Australia CBA.AX , the country's largest bank, on Wednesday said first-quarter cash profit fell 16% as near zero interest rates squeezed margins and offset sector-leading lending growth.

Australia's four biggest lenders have seen cash earnings fall by over a third in fiscal 2020 as the pandemic-driven economic crisis batters the sector.

But while some of its peers have been cautious about expanding their loan books in such a market, Commonwealth Bank has shown a solid appetite to lend.

The bank reported a A$7 billion ($5.1 billion) increase in home and business lending during the three months to September, twice the average increase by its peers.

With the official cash rate down to 0.1%, CBA and its peers chose to protect their margins by lowering fixed rates rather than passing on the savings to the majority of their mortgage customers who have variable-rate products. that slowed the pace of margin erosion as customers need to refinance their loans to benefit, CBA said more were doing so thus lowering its net interest margin - the difference between interest earned from lending and paid for deposits. The bank did not say how much its margin had fallen.

Cash net profit after tax, which excludes one-offs and non-cash accounting items, dropped to A$1.80 billion ($1.3 billion) in the three months ended Sept. 30, CBA said.

The trading update was "slightly underwhelming ... for a premium rated stock," Credit Suisse (SIX:CSGN) analysts said. Goldman Sachs (NYSE:GS) agreed, maintaining its sell rating on the bank, which trades at a 24% premium to peers.

CBA said impaired and other troublesome assets fell to A$8.40 billion, from A$8.70 billion as of June-end, due to pandemic support for borrowers including freezing loan payments for several months.

About 4% of all home loans and 3% of SME business loans were still in the pandemic deferral programme, down from about 11% and 28% respectively in June.

($1 = 1.3732 Australian dollars)

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