Commonwealth Bank of Australia (ASX: CBA), the country's top lender, has posted cash earnings of $1.6 billion for the three months to September. That compares with $1.4 billion reported a year-ago and hits the $1.6 billion average forecast of analysts.

However, Commbank says margins continued to be under pressure as higher funding costs hurt. It said retail-bank margin slid to 215 basis points from 219 reported in the six months to June, and that margins have declined by 15 per cent since the start of the financial crisis.

Playing down the bank's result, CBA's chief executive Ralph Norris said "Operating conditions remain challenging."

''Credit growth remains muted, and margins continue to come under pressure from higher average funding costs and price competition.

''Whilst we have passed the peak in the bad debt cycle, improvement in key credit quality indicators continues to be gradual, rather than dramatic.

"We expect a gradual improvement in operating conditions in the second half of this financial year, as the economic recovery strengthens and system credit growth rebounds."

Bad-debt charges totalled at $321 million as business confidence improved in line with the economy. The bank said bad debts had peaked but added the fall would be gradual rather than dramatic.

Despite the good first quarter results, Mr Norris, admitted today he expects more customers will leave the bank, after its controversial decision to lift mortgage rates by nearly double the Reserve Bank's interest-rate rise this month.

"There was no doubt (the rate hike) - given the high profile, the amount of coverage and the commentary by politicians - has created angst," he said, according to The Australian.

CBA shares have slumped 11.5 per cent this year compared with a 3.6 per cent fall for the benchmark index.

With Reuters