Commonwealth Bank shares have hit a record high above $67 after the bank announced a $3.66 billion half-year profit, despite slow lending growth across the economy.
CBA's statutory profit result was up just 1 per cent on the same period a year ago, but the bank's preferred measure of cash earnings, which excludes one-off costs and gains, was up 6 per cent to $3.78 billion.
The bank says the result was driven by a $26 billion (4.2 per cent) rise in loans to $649 billion, with deposits also up $26 billion (7.4 per cent) to $376 billion, as Australians continued to save more than before the global financial crisis.
However, CBA's chief financial officer David Craig says cheaper wholesale funding and a rebalancing between shares and savings mean deposit growth is slowing and the bank is looking more towards financial markets to fund its new loans.
"At a time when retail funding is substantially more expensive than wholesale funding we would think it would think it would be very silly to be funding all of our growth, you know seizing, trying to compete in an incredibly hot retail deposit market and hurting our shareholders by taking more expensive funding when there's cheaper funding available on the wholesale markets," he said.
CBA says its net interest margin - which measures the gap between the interest rate the bank pays to borrow money and what it lends it out at - declined 2 basis points over the past year to 2.1 per cent due to higher wholesale funding and deposit costs.
However, the bank also admitted its net interest margin rose 4 basis points in the six months to December when compared with the six months to June.
The recent rise in net interest margin may not please the bank's customers, but it has enthused analysts, such as Morningstar's heading of banking research, David Ellis, who described it as a "cracker result".
"Australia's largest bank continues to prosper due to better margins, higher trading income, a recovery in wealth management and productivity improvements," he wrote in a note on the results.
"Pleasingly, there are no material adverse surprises in the interim result, with the outlook consistent with our long term positive view on Australia's four major narrow moat banks." CBA's chief executive Ian Narev says the bank's profit growth was largely driven by personal banking.
"The retail banking cash net profit after tax was up 13 per cent, which was a strong result and one that's particularly good in terms of the underlying momentum for a business with new leadership, and it's now about nine months ago since we announced Ross McEwan's departure," he said.
Investors were also pleased by a 20 per cent increase in the bank's interim dividend to $1.64 a share, in line with a revised dividend policy announced in August last year.
CBA's share price jumped 2.5 per cent to $67.15 by 1:18pm (AEDT).
Upbeat outlook The Commonwealth Bank says it has remained conservative in setting aside $4.7 billion in provisions to cover potential losses.
Mr Narev says the bank has benefitted somewhat from improved global economic conditions since its 2011-12 full-year results were released in August.
"In each of the major areas of concern â European Union stability, US recovery and China's on-going growth â developments have been positive overall," he noted in the report.
"As a result, we have experienced a period of relative stability, which has had a positive impact on global equity and debt markets." Mr Narev says the bank is expecting the current stability to translate into a rise in consumer and business confidence in Australia this year, but he also warns that there is much that could still go wrong globally.
"In particular, there is still no sustainable long-term plan for resolving sovereign indebtedness in Europe, and the US recovery remains fragile," he observed.
"And the long term effects of the strategies of overseas central banks to restore stability are uncertain."