Commonwealth Bank reports lower funding costs and brighter outlook as interim profits rise 6% to $3.78 billion

Australia’s biggest mortgage lender, the Commonwealth Bank, has signalled a brighter outlook for 2013 as it reported a 6% rise in interim profits to December 2012 of $3.78 billion.

The bank has 25.1% of the mortgage market – one in four borrowers in Australian has a Commonwealth Bank home loan – and its earlier reporting of interim results ahead of its big four rivals is considered a bellwether for the health of the banking and mortgage industry.

The bank wrote $1.54 billion in new mortgages in the half-year period an increase of 15% on the previous corresponding period, with mortgage brokers responsible for 38% of new lending over this period.

Importantly for borrowers, it reported a steep decline in long-term wholesale funding costs, giving the bank the capacity to use the $13 billion raised from investors offshore to fund cheaper mortgage lending in 2013.

Long-term wholesale funding margins decline from 169 basis points (margin to BBSW) six months ago to 109 basis points as of December 2012.

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Earnings from the bank’s retail banking division, which includes mortgage lending, rose 7% to $2.93 billion.

Commonwealth Bank chief executive Ian Narev called it a “strong result” in “subdued market conditions”.

He says the bank maintains a “cautious outlook” for 2013 with modest expectations for mortgage lending growth in 2013.

The bank expects mortgage growth of between 4% and 6% in 2013 rising to 5.5% to 7.5% in 2014.

Narev acknowledged that conditions remained challenging for borrowers, but that credit quality has not deteriorated.

“As a result we have experienced a period of relative stability, which has had a positive impact on global equity and debt markets

“Of course risks remain in the economy as a major financial institution we must remain cautious.”

But he said if the current stability continues, slow but steady rebuilding of consumer and business confidence in 2013

“And that is our base case for 2013.”

The Commonwealth Bank is the second biggest listed Australian company on the ASX by market capitalisation and fourth biggest taxpayer.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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