The Commonwealth Bank of Australia (CBA) is confident it can weather intense competition in financial services and a predicted slowdown in business and consumer credit growth.
Yesterday the bank delivered an 18 per cent jump in cash profits to $4.6 billion for the 2006/07 financial year, setting a new record.
CBA expects to match or exceed the performance of its competitors in the next 12 months and confirmed it has “no material direct exposure” to sub-prime mortgage woes in the US.
“We are well positioned to perform strongly in a competitive environment,” CBA chief executive Ralph Norris said.
The bank said domestic housing credit would rise at similar levels to 2007 and the “current high level of competitive intensity” for financial services was not expected to decline this year.
It warned business and consumer credit growth would ease slightly from current levels.
“Despite all this, all of the group’s businesses are performing well,” CBA said.
The earnings result was in line with expectations and was driven by double-digit growth across all banking, funds management and insurance lines.
After-tax cash profit for CBA’s funds management division jumped 20 per cent to $492 million on the back of bullish investment markets and changes to the superannuation regime.
Funds under administration (FUA) jumped 16.9 per cent to $177 billion over the year and 7.1 per cent for the June quarter.
Retail flows into the FirstChoice platform rose 51 per cent over the year to $39.5 billion.
The bank was forced to wipe off $7.1 billion FUA following the departure of Goldman Sachs JB Were from the wholesale Aventeos platform.
Net fund flows for the year of $1.8 billion were affected by the disengagement, the bank said.
Driving a 16 per cent increase in operating expenses to $890 million within funds management were increased spending on cross-selling, new products and the establishment of competitive remuneration schemes in the asset management business.
“Life insurance is competitive, asset management is competitive, the platform space is very competitive and there’s a war on talent,” CBA group executive of wealth management Grahame Petersen said.
“[Our focus is] primarily about retaining and developing the business and keeping our high-quality people,” he said.
