:Commonwealth Bank of Australia on Tuesday warned high interest rates could impact its customers' capacity to repay loans on time over the coming months while heating competition in the mortgage markets threatens its margins.
Australia's biggest lender expects arrears rate to increase as borrowers bear the full brunt of interest rates, which accelerated to over a decade-high level at an unprecedented pace, also auguring economic uncertainty and potentially weak credit growth.
CBA joins the other three of the "Big Four" banks in voicing a challenge to margins as competition among the rivals ramps up, with high borrowing costs and uncertain economic outlook potentially impacting lending growth.
Shares of the 111-year-old bank were trading 1.1 per cent lower at A$96.00 by 0005 GMT.
CBA's home loan arrears stood at 0.44 per cent, as of March-end quarter, a tick higher from 0.43 per cent seen in the prior quarter. Its troubled and impaired assets rose to A$6.70 billion ($4.54 billion), or 0.47 per cent of total exposures, from A$6.30 billion as at 2022-end.
"Many of our customers are feeling the strain of higher interest rates and the rising cost of living," the bank said.
Australian banks have been facing headwinds from intensifying competition in the mortgage market as windfall from rising interest rates that boosted their margins over the past year peaks, forcing them to look beyond traditional residential mortgages business for growth.
CBA logged a 2 per cent drop in its net interest income, pulled down by lower net interest margins due to "continued competitive pressure in home loan pricing and customers switching to higher yielding deposits".
Home lending volumes in Australia jumped A$6.90 billion during March quarter, in line with system growth, while business lending outpaced system to add A$2.60 billion. Household deposits, however, grew at 0.7 times the rate of system, or A$6.2 billion.
The lender's cash net profit after tax came in at about A$2.60 billion for the three months ended March 31, marginally beating the consensus estimate of A$2.58 billion by Visible Alpha, according to Citi.
CBA had reported A$2.40 billion in cash net profit after tax a year earlier.
"A soft result relative to market expectations, although not surprising given the context of recent peer results," analysts at Citigroup said in a research note.
Common equity tier 1 ratio, a closely watched measure of spare cash, stood at 12.1 per cent on March 31, 7 basis points higher than on Dec. 31.
($1 = 1.4743 Australian dollars)