The third quarter trading update from the Commonwealth Bank (CBA) has confirmed the Australian banking sector has seen a sharp slowing in revenue and earnings growth.
The weak result on Monday from Westpac (WBC) was the first real sign of this slowing – the ANZ‘s slightly better interim on Tuesday provided some evidence to the contrary, but this morning that CBA revealed a third quarter cash profit of around $2.2 billion – unchanged from the third quarter in 2014 and the first half of the current financial year.
Like Westpac and the ANZ, the CBA mentioned higher expense growth and pressure on its profit margins from rising levels of competition as reasons for the flat result.
The CBA said revenue grew at a similar pace to the first half of this year and “strong” trading income.
It said that expense growth had increased in the quarter because of higher regulatory and compliance costs, including costs associated with its financial advice review.
The relatively weak result helps partially explain why the CBA only passed on 20 of the 25 basis point rate cut from the Reserve Bank yesterday to home loans and mortgages.
While the bank used some of the five points to boost deposit rates in some areas, and passed on the full 25 points to small business borrowers, home lending is its biggest area of activity and the trim will leave its mortgage rates higher than some competitors.
The CBA said that group net interest margin for the March quarter was hit by intensified competition for mortgages. But the bank said it remained underweight mortgages in the investment and broker loan segments.
Troublesome and impaired assets were lower at $6.4 billion, with total loan impairment expense in the quarter set at $256 million. No comparison was given.
