Australia’s CBA issues dire economic forecast

The Commonwealth Bank of Australia (CBA) warned on Wednesday of potential economic risks in the country due to high interest rates and persistent inflation, Reuters reported.

The country’s largest lender registered a drop of eight per cent to record $4.837 million in its first-half net pre-tax profit, driven by flat operating income and higher operating expenses, partly offset by a lower loan impairment expense, its report said.

This comes at a time when Macquarie Group has indicated that it is gaining market share, signalling a challenging year for Australia’s “Big Four” banks as they face lower margins and fees, Reuters added.

CBA’s CEO Matt Comyn stated that the impact of cash rate increases on households and businesses is expected to continue in 2024, leading to financial strain and an increase in arrears and impairments.

Comyn highlighted the rising cost of living and its impact on households and businesses, leading to reduced spending. He also mentioned that inflation remains high and economic growth is expected to fall below 1.5 per cent this year.

CBA’s profit reflects the challenges faced by Australian banks due to higher costs and a contraction in net interest margins (NIM), according to Daniel Yu, Vice President for Moody’s Investors Service.