COMMONWEALTH Bank is poised to deliver a bigger than expected annual profit of nearly $6 billion after it yesterday issued a shock earnings upgrade.
The improved outlook ranks in stark contrast to the global banking system which continues to struggle with the financial crisis.
It highlights the momentum building in the Australian economy, and other big banks are expected to follow with their own profit upgrades, particularly as the level of bad debt drops.
But the prospect of a profit windfall comes at a sensitive time for banks, which remain on the nose among customers for pushing through interest rate rises in excess of official moves at the same time they tightened their grip on the nation's home-lending market as competition fell away.
''Post the global financial crisis, the strongest banks have just got stronger,'' said Stewart Oldfield, a bank analyst with stockbroker EL&C Baillieu.
Concerns about a lack of competition have intensified since CBA swooped on Perth-based Bankwest last year, delivering it a greater share of mortgages, credit cards and savings accounts.
At the same time, the improved outlook for Australia's banks is expected to increase pressure on Treasurer Wayne Swan to rethink a range of support measures for the sector, including a funding guarantee program that enables big banks to borrow funds on global markets at cheaper rates.
CBA said its first-half cash profit would rise about 44 per cent from a year earlier after solid income growth. Its unaudited cash profit for the six months to December 31 will be $2.9 billion, well up on the prior year's $2.013 billion.
The bank said the profit would be ''well ahead'' of the consensus analyst forecast of $2.7 billion. It said the result reflected ''a continuation of the momentum'' reported at its first-quarter update in November.
The profit upgrade was issued just minutes before the close of the sharemarket, pushing CBA's shares up 2.3 per cent to end at a record of $58.10.
This time last year, CBA's shares were trading at just half this level on fears the economy would be crunched by the global crisis.
But a fresh batch of figures this week showed the economy was staging a stronger recovery than most experts expected, increasing the odds the Reserve Bank will raise official interest rates from 3.75 per cent next month.
More than 35,000 jobs were created in the normally quiet month of December, and the unemployment rate continued its descent to 5.5 per cent, the Bureau of Statistics said on Thursday. Retail trade in November also blew away economists' forecasts - it jumped 1.4 per cent.
CBA is scheduled to report its first-half earnings on February 10.
Key drivers of the result were solid revenue growth across the business, tight cost management and a drop-off in the lending losses that played havoc with profits across the bank sector last year. In November, CBA chief executive Ralph Norris said the bad debt cycle had probably peaked.
Also helping the result was a $240 million turnaround in wealth management earnings as equity markets recovered over the six months.
CBA had said in November that cash earnings for the three months to September jumped 27 per cent to $1.4 billion. At that stage, the impairment charge was $700 million for the three months, little changed from the previous quarter.
With CLANCY YEATES
