© Reuters.
Investing.com– Shares of Australia’s four largest banks fell on Wednesday, with Commonwealth Bank Of Australia (ASX:) in the lead after the country’s largest lender warned of worsening margins due to increased economic pressure from high interest rates.
CBA’s shares fell 3.1%, while those of its big four peers ANZ Group Holdings Ltd (ASX:), National Australia Bank Ltd (ASX:) and Westpac Banking Corp (ASX:) fell between 1.2% and 2.1%. Losses in the four dragged the benchmark down 1%.
Australia’s largest lender clocked a 3% decline in its cash profit for the six months to December 31, 2023, to A$5.02 billion ($3.2 billion).
While the decline was lesser than feared, it still highlighted the increasing pressure on lending margins from shrinking household savings in Australia, as the impact of higher interest rates was baked into the economy.
CBA and its peers had initially benefited from higher lending margins, as they passed on the Reserve Bank of Australia’s rate hikes to their customers. But credit activity had begun slowing in the second half of 2023, as customers began facing increased pressure from high interest rates and relatively high inflation.
“As cash rate increases have a lagged impact on households and business customers, we expect financial strain to continue in 2024, with an uptick in our arrears and impairments,” CBA Chief Executive Matt Comyn said in the earnings release.
Comyn added that Wednesday’s profit drop came largely from higher costs and a “competitive operating environment.”
With Australian credit activity now on the backfoot, CBA and its peers face increased competition among each other to capture what little share of the credit market remains.
The prospect of higher Australian interest rates also bodes poorly for the banks. The RBA had recently warned that interest rates could still rise further if Australian inflation remained sticky.
The by a cumulative 425 basis points over the last two years, as it moved to curb a post-COVID spike in inflation.
While fell in recent months, it remained well above the RBA’s 2% annual target, and is projected to only hit the target by late-2025/early-2026.
CBA’s earnings also come just days after peer ANZ clocked a flat quarterly revenue. While the reading was still seen as positive, ANZ’s pace of revenue growth now appeared to be slowing after a record-high annual profit last year.