CBA profits withstand harsh economic outlook, bad debts fall: shares rally to 5-month high

Commonwealth Bank (ASX: CBA) says volume growth across core products and the benefit of rising interest rates helped first-quarter cash profits rise 2% to $2.5bn.

The profit figure was below Morgan Stanley's expectations of 6.5% growth to $2.61bn. Still, CBA shares managed to rally in early trade, up 1.7% to a five month high of $106.90.

September quarter overview

Operating income rose 9% to $12.2bn for the quarter ended 30 September, supported by still-solid volume growth and higher net interest income.

Still, household deposits and home lending volumes, were growing at rates below system averages.

Household deposits increased $7.9bn or 8.6% (0.9 times system average) while home lending rose $5.1bn or 6.3% (also 0.9 times system average). Business lending was a clear outlier with volumes up $1.6bn or 12.6%, which was 1.2 times system.

Operating expenses rose approximately 4.5% due to higher staff costs, inflation and additional working days.

The growth in expenses was above Morgan Stanley expectations of 3.6% growth.

Credit quality still improving

Credit quality continues to improve in the face of higher interest rates and the rising cost of living.

"Key credit quality indicators improved in the quarter, including lower consumer arrears and reduced levels of Troublesome and Impaired Assets," CBA said in a statement.

"Home loan arrears remained low, supported by a strong labour market. Consumer Finance arrears improved in the quarter in line with seasonal trends and underpinned by low levels of unemployment."

Troublesome and impaired assets fell to $6.1bn (0.45% of total committed exposures) compared to $7.1bn (0.55%) a year ago.

Total credit provisions were broadly unchanged at $5.4bn, reflecting sound portfolio credit quality but also a cautious approach ahead of a more harsh economic outlook.

CBA share price chart