Mortgage spike helps CBA record 6% profit growth

The Commonwealth Bank of Australia has recorded a cash profit of $2.65 billion in the September quarter, with a great portion of the increase attributed to a rise in lending volumes.

The major bank’s trading update, released on 8 November, reported a 2.7 per cent increase in home lending volumes in 1Q18.

“Home lending growth was managed within regulatory limits,” the report said. “The credit quality of the Group’s lending portfolios remained sound.”

CBA’s strong quarterly performance comes amid admissions from non-major banks and brokerage firms like Bendigo and Adelaide Bank and Yellow Brick Road, who noted the negative impact that tightened credit conditions have had on their bottom line.

In his annual report, Yellow Brick Road’s executive chairman, Mark Bouris, acknowledged the effect that the changes had on his company’s profitability.

“Lending restrictions by the regulators affected volumes across the sector and credit conditions have continued to tighten,” Mr Bouris said.

CBA experienced a 4 per cent growth in operating income “underpinned by volume growth and improved margins”.

The major lender suffered Loan Impairment Expenses of only $198 million, and pointed to the figure as another sign of its “sound credit quality”.

Business lending, however, dropped by 1.0 per cent, despite analysis from some industry experts like Morningstar’s David Ellis predicting a rise in business credit growth.

Earlier this year, the four major banks increased interest rates for borrowers following APRA’s announcement to tighten credit conditions. CBA increased interest rates for new and existing interest-only borrowers by 30 basis points.

The move was met with widespread criticism and led to a parliamentary inquiry which sought to examine whether the major banks had taken advantage of the regulatory changes to increase profits.

Outgoing chief executive Ian Narev faced questioning by members of parliament in Canberra, denying all accusations.

[Related: Narev comes clean on CBA’s ‘$500m’ rate hike]

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Charbel Kadib

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