(16 November 2011 – Australia) First quarter profit climbed 9.4 percent for Commonwealth Bank (CBA), the result was in-line with forecasts, but the bank warned that higher funding costs were squeezing margins.CBA reported a cash profit of A$1.75 billion in the three months to September. That compares with A$1.6 billion reported a year ago and A$1.8 billion average forecast of six analysts.
CBA’s quarterly update follows full-year earnings announcement by rivals National Australia Bank (NAB), Westpac and ANZ.
The top four banks raise about A$100 billion annually from wholesale debt markets, primarily from Europe and the United States, and are now replacing low cost funds raised before the global financial crisis with funds carrying a margin 10 times higher.
The rising cost of funds thanks to the instability in Europe and falling loan demand is crimping profit growth and pushing banks to cut costs to try and maintain earnings growth.
CBA has so far focused on defending its mortgage market share and expanding into business banking. It is also spending over A$1 billion to modernise its banking technology platform.
CBA’s rival ANZ has earmarked Asia for growth and analysts expect CBA to come up with a similar strategy.
CBA said bad debt charges were A$256 million in the quarter, and tier I capital, a measure of the bank’s ability to absorb losses, was at 9.85 percent at September 2011 down from 10.01 percent in June.
The Tier I ratio fell due to corporate lending growth, higher levels of liquid assets and the impact of foreign exchange, CBA said in a statement. The bank raised liquid holdings by A$8 billion in the quarter to A$109 billion given global economic instability.