Commonwealth Bank of Australia has broken the $10 billion barrier to post its biggest-ever yearly profit, after rising interest rates boosted its lending margins.
The country's biggest lender on Wednesday reported a five per cent increase in annual net profit to $10.2 billion for 2022/23 - slightly above consensus expectations of $10.1 billion.
Operating income was up 13 per cent to $27 billion as the bank's net interest margin - the difference between how much it charges on repayments and how much it borrows at - climbed 17 basis points higher because of the Reserve Bank's cash rate hike spree.
However, the margin dropped five basis points in the second half of the year, indicating some slippage in earnings.
But customers are still managing to keep up with their mortgage repayments, despite fears of a credit cliff as thousands of borrowers roll off low, fixed rate loans.
The proportion of mortgages in arrears by more than 90 days increased slightly, but the share remained historically small at 0.47 per cent, which the bank attributed to low unemployment and high savings levels.
Credit card and personal loan arrears worsened, reflecting mounting cost of living pressures, as well as troublesome and impaired assets, driven primarily by loans to the construction and commercial property sectors.
Loan impairment expenses increased by $1.5 billion, attributed to cost of living pressures and a rebound from a one-off COVID-related draw-down the prior year.
Chief executive Matt Comyn said the bank's conservative balance sheet placed it well to ride out economic headwinds, holding $8 billion of surplus capital above regulatory requirements.
"However, there are signs of downside risks building as rising interest rates have a lagged impact on mortgage customers and other cost of living pressures become a financial strain for more Australians," Mr Comyn said in an announcement to investors.
"We are seeing consumer demand moderate and economic growth slow and we are closely monitoring the impact of reduced discretionary spend, particularly on our small- and medium-sized business customers."
Overall, the Australian economy is in better shape than many international markets and the bank's base case remains a soft landing to inflation, Mr Comyn said.
Mr Comyn believes the end of the central rate hike cycle is near, although rates may stay high for some time to come.
Daniel Yu, vice president of Moody's Investors Service, expects competition to weigh down on margins while inflationary pressures make cost management more challenging.
S&P Global Ratings expects CBA to maintain strong earnings relative to global and domestic peers given healthy capital levels and a positive outlook for the Australian economy.
The bank paid investors a dividend of $2.40 per share fully franked, taking its full-year dividend to $4.50.
Mr Comyn's total remuneration for the year was $10.43 million, up from a total of $6.97 million in 2021/22 year, including a base salary of $2.5 million and long and short term bonuses.
Financial Sector Union boss Julia Angrisano said the result showed CBA can afford to offer staff more than its proposed 12.75 per cent increase over three years.
"Their proposed pay rise would be a pay cut in real terms, given inflation," she said.
"The finance industry would expect CBA to provide industry-leading wage increases given their industry-leading profits."
Greens Senator Mehreen Faruqi said the jumps in corporate profits seen over the past year were "absolutely obscene".
"It's corporate profits driving inflation. Yet who is bearing the brunt of it? It's everyday people with the cost of living," she told ABC Radio.
CBA shares had climbed 1.9 per cent to $104.10 at noon.
CBA'S SOLID FULL-YEAR PROFIT
* Cash earnings up 6 per cent to $10.2 billion
* Net profit up 5 per cent to $10.2 billion
* Operating income up 13 per cent to $27.2 billion
* Fully-franked final dividend $2.40 a share v $2.10 a share a year ago.
Australian Associated Press