CBA's cash earnings rise 30pc

Sir Ralph Norris says Commonwealth's margins are still under pressure despite the improving economic outlook. Photo / Dean Purcell

SYDNEY - Commonwealth Bank of Australia, the country's largest lender, said first-quarter earnings climbed 30 per cent as charges for soured loans fell in an improving economy.

Unaudited cash earnings in the three months ended March 31 rose to about A$1.5 billion ($1.87 billion), the Sydney-based bank said yesterday. That compares with A$1.15 billion in the same period a year earlier.

Australia's largest lenders including National Australia Bank and Westpac are looking for a recovery in credit demand, especially from businesses, to swell earnings now that the bad-debt cycle has peaked.

Commonwealth Bank said yesterday that loan growth was "muted" and the global financial crisis continued to drive up the cost of the bank's funding.

"Margins continue to come under pressure," said New Zealand-born chief executive Sir Ralph Norris.

"Whilst the economic outlook is improving, short-term risks and uncertainties remain. Operating conditions remain challenging."

Commonwealth shares fell A55c to A$54.30 on the ASX200 yesterday.

Impairment expenses in the quarter were about A$500 million, Commonwealth Bank said. That compares with a charge of A$630 million in the same period a year earlier.

Australia's economic growth is projected to double in the next two years, from 2 per cent in the 12 months ending next month to 4 per cent in the year ending June 2012, according to the Government.

The nation avoided recession in the crisis and the banks survived without bailouts.

Cameron Clyne, chief executive of National Australia Bank, which last week reported an 8.2 per cent gain in first-half cash earnings, said business credit demand should return in the second half or in 2011.

Westpac, posting a record six-month profit, said it expected business-loan demand to improve in the second half.

- BLOOMBERG