Commonwealth Bank Sees Growing Loan Demand After Record Profit

Commonwealth Bank of Australia, the nation’s biggest lender, forecast strengthening demand for loans and fewer bad debts after posting record profit in its fiscal first half as the financial crisis abates.

Impairment charges for soured loans have peaked and will gradually decline, Chief Executive Officer Ralph Norris said in a statement. Net income in the six months to Dec. 31 climbed 13 percent to A$2.91 billion ($2.56 billion) from the same period a year earlier, the bank reported today.

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The 99-year-old bank, which reported preliminary results for the period last month, booked fewer bad-debt charges as Australia’s benchmark stock index rallied 23 percent in the period. While Norris said Australia’s recovery will continue, he bolstered capital at the bank as some struggling western economies weigh on investor confidence and the threat of tighter regulation hangs over banks worldwide.

“It’s a very strong result,” said Prasad Patkar, who helps manage about $1.5 billion at Platypus Asset Management in Sydney. “They are being conservative in predicting a gentler trajectory for improvement in bad-debt provisioning, which is the right thing to do given all the lingering uncertainties.”

Earnings at Sydney-based Commonwealth Bank beat the A$2.81 billion expected by analysts, according to the average of two estimates compiled by Bloomberg. Impairment expenses dropped 29 percent to A$1.38 billion from the year earlier, the bank said.

‘Sustainable Recovery’

Commonwealth Bank shares, which have climbed 21 percent in the past six months, climbed 0.9 percent to A$53.19 at 10:02 a.m. in Sydney trading, valuing the company at A$81 billion.

The improved economic outlook led Australia’s government this week to say banks no longer need help accessing credit, pledging to end on March 31 a guarantee on wholesale funding that was put in place during the crisis.

“Australia now appears to be on the road to a sustainable economic recovery,” Norris said in the statement. “That is likely to bring with it a gradual improvement in demand for credit in 2010.”

Fitch Ratings said Jan. 14 that the chance of several major corporate collapses in Australia had diminished, and even if loan and mortgage defaults climbed, the four biggest banks have “substantial capacity” to absorb increases.

Macquarie Group Ltd., Australia’s largest investment bank, said yesterday that profit in the six months ending March 31 will probably be higher than its earlier forecast amid a market recovery, joining Axa Asia Pacific Holdings Ltd. in indicating estimate-beating results.

‘International Volatility’

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Commonwealth Bank and its three closest rivals have raised home-loan prices after Australia’s central bank increased benchmark borrowing costs three times since October. The Reserve Bank of Australia kept rates on hold this month to give time for those rate increases to take effect.

The bank said today there are risks from “international volatility” that may affect short-term results. Commonwealth Bank’s Tier-1 capital ratio, a key measure of a lender’s ability to absorb potential losses, climbed more than 1 percentage point to 9.1 percent on Dec. 31 from June 30.

“There is still some uncertainty about the speed of recovery for the global economy,” the bank said in its statement. “The group plans to retain its current conservative capital and liquidity settings for the foreseeable future.”

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