Bank reports huge profits and says customers can cope with rising rates -
interest rates Uk

Bank reports huge profits and says customers can cope with rising rates

The Commonwealth Bank of Australia (CBA) has announced an increase in profits of 9%. This comes despite a fall in its net interest margin. According to recently released data, the bank enjoyed profits of $9.7 billion in the 2021-2022 financial year, and there was an 11% increase in its cash profit which soared to $9.6 billion.

Figures show that the net interest margin (NIM), which refers to the difference between what the bank pays to borrow money and the rate that it lends at, fell to 1.9%. However, industry experts believe that the NIM will grow due to the bank passing interest rate hikes on in their entirety to mortgage borrowers but only partly to savers.

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According to reports, CBA has grown home lending by 7.4% and increased business lending by 13.6%.

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A drop in household spending

Along with reporting its significant profits, CBA officials also stated that there had been a noticeable drop in household spending. Matt Comyn, the Chief Executive of CBA, said that this drop in spending began when interest rates started to rise.

He said: “It’s quite early post the immediate rate rises, [but] we are seeing already a downturn in spending across our customer base, both from a debit and credit perspective. Of course, that’s more pronounced with customers who have a home loan, and we expect that will continue throughout the course of the calendar year.”

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He added that there could be a downturn in the economy in 2023 due to this drop in spending but also said he did not expect the nation to go into recession.

Comyn said: “Those increases in the cash rate are going to have, and continue to have, quite a pronounced effect on the economy. We do think it will cause a contraction over the remainder of the year.”

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Customers able to handle rate increases

One of the other things that CBA has said is that it believes customers will be able to handle the interest rate increases. CBA officials said that they expect customers will be able to keep on top of their repayments despite soaring interest rates implemented to try to bring down inflation.

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Describing the bank’s customers as “very well placed,” Comyn acknowledged that rising rates and economic uncertainty put increased pressure on customers. However, he pointed out that over one-third of CBA borrowers were at least two years ahead with their mortgage repayments and approximately half were three months ahead.

CBA figures also showed that around two-thirds of customers paid above the minimum required amount on their direct debits. However, if the base interest rate rises to the forecast level of 2.6%, this could drop to a quarter of customers.