Commonwealth Bank of Australia, the nation's second-biggest lender, said on Wednesday second-half profit rose 17% on a booming funds management business, but flagged slower growth in consumer loans and business banking this year.
A surge in inflows from a mandatory state pension plan and a series of records for the stock market lifted performance at CBA's fund management arm, Colonial First State -- Australia's biggest fund manager. Profits from fund management business grew 23%.
CBA, which is Australia's top mortgage lender, said it had no exposure to the U.S. sub-prime market, though one of its hedge funds had some investments.
"In our funds management business, one fund is a hedge fund, that has less than one percent investment in U.S. subprime," David Carig, CBA's chief financial officer told reporters. "Obviously, we are not an investor in that. But that fund is expecting to perform above industry benchmark."
CBA, also Australia's most valuable bank, reported cash net profit of A$2.333 billion (US$1.944 billion) for the six months ended June, up from A$1.992 billion reported a year ago. Ten analysts on average had forecast cash profit at A$2.276 billion.
Cash profit is what is available to ordinary shareholders. It represents profit after tax and minority interests, before pension plan expenses and treasury share adjustments.
Full-year profit climbed 18% to a record A$4.604 billion, compared with analysts' forecasts of A$4.549 billion.
CBA said that while overall credit growth is likely to remain strong in the current year, it expects consumer credit growth to slow to 8.5% -10.5% from 15% last year and sees business credit growth slowing from 2007's 19%.
Australian banks have enjoyed strong loan growth, helped by 16 straight years of economic growth, while three-decade low unemployment has kept bad debts in check. But with interest rates rising to an 11-year high, investors are bracing for a pick-up in bad debt charges.
Australia's top four banks control about 80% of the banking assets, but non-bank lenders and foreign banks are turning aggressive.
Last month, BankWest, a unit of Britain's HBOS, announced plans to set up 160 branches.
CBA shares ended Tuesday at A$54.00, having risen 9.1% so far in 2007, compared with a 3.1% rise in eight-stock Australian banking sub-index. That makes CBA Australia's fourth-best performing banking stock in Australia this year.