Banking: CBA Lifts Profit, Dividend, Cuts Costs, Rules Out Job Losses

The Commonwealth Bank says it won't be joining rivals Westpac and ANZ, in cutting jobs as it met guidance yesterday with a cash net profit of $3.567 billion for the six months to December 31, up 7% on the same period of 2010-11.

Statutory net profit rose 19% to $3.624 billion (the cash profit is a better guide for a bank because it removes asset valuation effects).

The CBA lifted interim dividend 4% to $1.37 a share, from the $1.32 a share interim of a year ago, a bit less than had been expected by analysts.

Driving the profit rise was the a continued fall in the level of impairment charges on loans, a trend that had been happening now for two years and must be about exhausted.

Revenue for the half was a huge $10.105 billion, up 4%.

CBA said its average first-half net interest margin was 2.15%, up three basis points on the previous corresponding period but down 0.10% on the six months to June 2011.

The CBA said the much talked about lift in funding costs was directly responsible for a 0.10%-point drop in net interest margin from the second half of the 2011 financial year.

Wholesale funding costs contributed 0.6% of that fall, while deposit funding costs contributed 0.4% (that's the cost of keeping domestic term deposit rates high to attract and then hold money raised from the public).

On the outlook for the 2012 calendar year, new CEO Ian Narev said in yesterday's statement that, "With the outlook for the global economy remaining unpredictable, the Group plans to retain its existing conservative business settings.

"We welcome some positive signs of economic recovery but recognise that in times of uncertainty, banks must remain cautious.

"The fundamentals of the Australian economy remain strong and we have great confidence in the prospects for this economy.

"However, in the absence of sustained recovery in offshore economies, particularly Europe, businesses and consumers will remain cautious, and the current trend of weak credit growth, asset allocation towards cash, and volatile markets will continue in Australia.

"Until we see clear signs of that sustained recovery, average funding costs will continue to rise."

The commitment to not joining its rivals in slashing staff numbers was the headline grabber from the result, even overshadowing the record interim profit.

Mr Narev made it clear in commentary and media and analyst briefings that the bank will revamp its computer systems, 'unpick' complications in business processes and try to find efficiencies without getting rid of staff or sending jobs offshore to countries like India (as the ANZ and Westpac are doing).

"We have no plans to send jobs offshore. And we have no plans for major redundancy programs,'' chief executive Ian Narev said in a statement. Instead, the bank will continue to invest in technology to improve efficiency."

That's despite the bank admitting yesterday that the unpredictable world economy and high funding costs are making it ''difficult'' to make money on new mortgages.

It was an effective marketing move seeing the bank lifted its mortgage rate on Monday by 0.10%, and then reported a huge interim profit.

Now, like the NAB with its 'divorce' marketing campaign a year or so ago, the CBA has moved to differentiate itself from its rivals.

The bank's return on equity remained above 19% for the year, a very rich level. It means the bank is among the most profitable in the world.

The Reserve Bank said in its first Monetary Policy Statement of the year that Australian banks were currently funding 52% of their lending from deposits.

The CBA said yesterday that it was funding 62% of its lending from deposits from individuals and companies.

That was after a $31 billion lift in interest bearing deposits with the bank from retail and business customers in the half to a total of $350 billion.

That in itself is an enormous competitive advantage for the CBA.

CBA shares rose yesterday in the wake of the profit to end up 27c at $50.23.

Last week the NAB reported a 7.7 % improvement in first-quarter cash profit to $1.4 billion.

Westpac and the ANZ produce first quarter earnings up dates today and tomorrow respectively.

The new CBA boss has set a challenge for both to match.