The Commonwealth Bank's half year profits have swelled to $4.91 billion at the same time as it targeted property investors with another interest rate hike.
CBA, the country's largest bank, reported the 2 per cent lift in cash earnings on Wednesday, also raising its interim dividend by 1c to $1.99 a share.
More BusinessDay Videos
CBA posts record profit
The Commonwealth Bank of Australia has released its half-year earnings report.
The lender is also raising home loan interest rates for property investors with interest-only loans, who will face a 0.12 percentage point increase. Mortgage customers who have taken out a line of credit against their home face a 0.04 percentage point rate hike.
Those interest rate hikes come after CBAÂ last week froze new lending to property investors wanting to refinance from other banks, while its Bankwest subsidiary has also tightened the screws on new investors who are negatively gearing.Â
!["The risk of global market volatility, and indeed economic shock, remains heightened": CBA chief executive Ian Narev.](/web/20170215052214im_/http://www.smh.com.au/content/dam/images/g/s/k/e/g/x/image.related.articleLeadwide.620x349.gucvsm.png/1487120081886.jpg)
The rate rises were announced as the bank unveiled result showing its bottom line benefited from low charges for bad debts and tight control of costs, even as profit margins continued to be squeezed.
Excluding one-off factors, CBA's operating income rose 3 per cent, while operating expenses rose 1 per cent over the year.
Charges for soured loans as a percentage of its assets were flat, at 0.17 percentage points, confirming that credit quality stopped worsening in late 2016.
The number of customers behind on their personal loan repayments remained "elevated," mainly because of softer conditions in Western Australia and Queensland.
The bank said higher funding costs crunched its net interest margin - what it charges for loans compared with its cost of funds. The net interest margin fell 4 basis points to 2.11 per cent.
The result beat analyst expectations, as analysts had expected CBA to deliver a $4.84 billion profit and to keep the interim dividend flat at $1.98.
Chief executive Ian Narev said there was a "heightened" risk of an global economic downturn, but the domestic backdrop was more encouraging.
"The combination of geopolitical volatility and weak economic recovery in parts of the world means the risk of market volatility, and indeed economic shock, remains heightened. At the same time, recent trends in the Australian economy are more positive.," Mr Narev said in a statement.​
CBA's flagship retail banking arm powered the lift in profit, with its earnings rising 9 per cent to $2.46 billion, while its institutional banking arm posted a 10 per cent gain.
Profits in wealth management tumbled 34 per cent to $249 million, because of a sharp fall in profits from life insurance, and higher expenses across the division.
The interest rate hike, which comes after all major banks raised property investor rates in December, is understood to be linked to the regulator's 10 per cent cap on housing investor credit growth.
Announcing the move, CBA said it was committed to "meeting its regulatory requirements while ensuring it can provide for the long term sustainability of the Australian housing market."
Wednesday's rate hike will only affect property investors with interest only loans - a minority of the bank's customers, but a market in which it expanded in the latest half.
CBA is the most profitable bank in the country, but in recent years analysts have focused on a decline in its return on equity, and questioned whether it still deserves to trade at such a high premium compared with rival banks.Â
Return on equity is a key measure of profitability for a bank, and it rose 0.4 percentage points in the latest half compared with June, to 16 per cent.
Regal Funds Management senior analyst Omkar Joshi said a key surprise was an interest in non-interest income, with commissions growing 19 per cent and lending fees up 6 per cent in the half. Helped by this non-interest revenue and low bad debts, Mr Johsi said the result was "slightly stronger than expected."
In its outlook for the economy, CBA said the prospects for the Australian economy were "encouraging," citing the lift in commodity and the mining investment slump nearing its end.
The fall in the Australian dollar was also helping to boost the contribution of exports, it said.
"These trends can broaden the base of Australia's economy, if supported by the right trade, investment, immigration, infrastructure and taxation policies," the bank said.
The dividend will be fully-franked and paid to shareholders on the 4th of April.