Australia’s CBA Lags Bank Stocks as Demand Fears Outweigh Profit

By Ambar Warrick

Investing.com-- Shares of Commonwealth Bank Of Australia (ASX:CBA), the country’s largest lender, slipped on Wednesday as a warning over slowing demand for home loans outweighed a strong annual profit.

As of 2014 ET (0014 GMT), CBA’s shares fell 0.7% to 100.60 Australian dollars (A$). In contrast, those of its “big four” peers were up between 0.5% and 1.1%.

National Australia Bank Ltd (ASX:NAB) led gains among the lot, up 1.1% as it recovered from sharp losses in the prior session.

CBA’s losses come as CEO Matt Comyn warned that despite a strong fiscal 2022, the bank expects headwinds to its lending business from rising inflation, which has dented consumer sentiment.

“Inflation is high, and we have seen a rapid increase in the cash rate… We expect consumer demand to moderate as cost of living pressures increase,” said Comyn.

Net Cash profit for the year to Jun 30, 2022, rose 11% to A$942 million. The bank experienced a sharp increase in home loans- up 7%- amid record-low interest rates. But this trend is expected to slow after a series of rate hikes by the Reserve Bank in 2022, which CBA passed on to customers.

CBA’s net interest income rose 1% to A$19,473, while net interest margin- a closely watched measure of profitability- fell 18 basis points to 1.90%.

But despite a boom in the first half of the fiscal year, CBA is now experiencing a freeze in home loans from surging interest rates, rising inflation, and weak consumer sentiment.

The Reserve Bank of Australia hiked interest rates by a combined 175 basis points this year, as it looks to combat inflation nearing its highest level in nearly 30 years.

In its latest meeting, the bank warned that inflation would likely prove to be stubborn, and that more rate increases were warranted. This is likely to keep the home loans market subdued, pointing to more pressure on lenders despite improving margins.

NAB had logged a 6% gain in quarterly earnings on Tuesday. But shares of the firm plummeted, dragging its peers lower after it flagged increased costs through the remainder of the year.