Australia's biggest lender is feeling the impact of tough competition in the home loan market on its margins despite recording strong growth in deposits and lending volumes in the March quarter.
Commonwealth Bank says there has been continued improvement in economic conditions as the effects of the pandemic fade and investment picks up as a consequence of higher government and consumer spending.
"Continued growth in household deposits, home loans, business lending and business deposits was a feature of the quarter," Chief Executive Matt Comyn said on Thursday, adding that the outcome underlined the disciplined execution of the group's strategy.
Despite the encouraging conditions, third-quarter cash profit remained steady at $2.4 billion as growth in lending volumes was offset by the impact of ongoing margin pressure.
The result was ahead of analyst expectations and is unchanged when measured against the average outcome for the first two quarters of this fiscal year. On a corresponding quarter basis, it is down two per cent.
Statutory earnings for the three months to March 31 came in at $2.3 billion.
By 1300 AEST, CBA shares were up 0.8 per cent at $102.30 in a weak Australian market.
CBA's household and business deposits were up $8.5 billion and $2.2 billion respectively - rising at an above system rate, while business lending grew at 1.5 times the system, the lender said.
Net interest income dropped two per cent on account of the rising cost of funds and and ongoing competition in the home loan market.
Like its Big Four peers, CBA has not been able to avoid the stiff competitive pressures of the home loan market that in part resulted in ANZ and NAB last week walk away from their target to reduce absolute costs.
But the figures indicate it is starting to scale back on lower margin business.
CBA said home lending rose $6.9 billion in the March quarter but growth was at par with the industry. By comparison, it had grown home lending at faster than industry average during the first half of the fiscal year even as margins were shrinking.
Much of that squeeze is expected to ease in the coming year as interest rates rise. The Reserve Bank last week lifted the cash rate from a record low 0.1 per cent, kickstarting a likely series of hikes to tame inflation.
The bank said credit quality has remained strong with loan impairments falling in the quarter, and arrears outstanding over three months on personal loans, credit card borrowings and home loans also remaining low.
But the group is adopting a cautious approach to potential risks that might come about because of higher interest rates, inflationary pressures and supply-chain disruptions by maintaining total credit provisions of $5.7 billion.
The bank had a CET1 capital ratio of 11.1 per cent at March 31, a decrease of nine basis points in the quarter.