Bank tips loans surge after record result

SYDNEY - Commonwealth Bank, Australia's biggest lender, forecast strengthening demand for loans and fewer bad debts after posting record profits in its fiscal first half as the financial crisis fades.

Impairment charges for soured loans have peaked and will decline, chief executive Ralph Norris said. Net income in the six months to December 31 climbed 13 per cent to A$2.91 billion ($3.67 billion) from the same period a year earlier, the bank reported.

The 99-year-old bank booked fewer bad-debt charges as Australia's benchmark stock index rallied 23 per cent in the period. While Norris said Australia's recovery will continue, 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 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 the 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 per cent to A$1.38 billion from the year earlier, the bank said.

Commonwealth Bank shares, which have climbed 21 per cent in the past six months, climbed 0.9 per cent to A$53.19 yesterday morning in Sydney trading, valuing the company at A$81 billion. However they lost ground, eventually closing at A$51.83.

The improved economic outlook led Australia's Government to say banks no longer need help accessing credit, pledging to end on March 31 a guarantee on wholesale funding.

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

Fitch Ratings said last month the chance of several major corporate collapses in Australia had diminished, and even if loan and mortgage defaults climbed, the four biggest banks had "substantial capacity" to absorb increases. Macquarie Group, Australia's largest investment bank, said yesterday profit in the six months ending March 31 would probably be higher than its forecast amid a market recovery, joining AXA Asia Pacific Holdings in indicating estimate-beating results.

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 yesterday there were risks from "international volatility" that may affect short-term results. Commonwealth Bank's Tier-1 capital ratio, a measure of a lender's ability to absorb potential losses, climbed more than 1 percentage point to 9.1 per cent on December 31 from June 30.

- AP