Commonwealth Bank of Australia, the country's biggest mortgage lender, reported a record half-year profit and said it expected domestic business and consumer confidence to improve in line with a more stable global outlook.
Cash profit rose 6 percent to A$3.78 billion ($3.90 billion), in line with analysts' expectations, buoyed by its retail bank business and improvements in global markets over the six months to Dec. 31 that boosted wealth management earnings.
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Chief Executive Ian Narev said the period was marked by "relative stability" thanks to positive developments in the key problem areas of European stability, a U.S. economic recovery and China's growth.
"If the current stability continues, we believe it will translate into a slow but steady rebuilding of consumer and business confidence in Australia," Narev said in a statement.
Australian banks have been grappling with higher funding costs in the wholesale market and subdued loan growth as a result of flagging consumer confidence amid a tail-off in Australia's powerful mining boom.
Narev said funding costs for CBA, which offers one in every four Australian mortgages, remained elevated due to competition for deposits and the impact of repricing long-term debt on wholesale markets.
CBA's net interest margin, the difference between interest earned and paid, was 2.1 percent in the second-half, up from 2.06 percent in the previous corresponding period but down from 2.12 in the prior half.
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The A$3.78 billion cash profit, which is closely watched by analysts as it excludes one-offs and non-cash accounting items, compared with A$3.576 billion reported a year ago and was in line with analysts' expectations of A$3.740 billion according to Thomson Reuters I/B/E/S data.
The result beat the bank's previous record half-yearly profit of A$3.576 in the first half of last year.
Australia's 'Big Four' banks - CBA, Westpac Banking, National Australia Bank and Australia and New Zealand Banking raise about $100 billion a year from wholesale debt markets, mainly from Europe and the United States.
Analysts have said a recent improvement in funding costs has brightened the near-term outlook for the sector, but warned that margins are likely to come under pressure in the medium term as the low-growth environment spurs increased competition.
CBA's earnings are viewed as a bellwether for the Australian banking sector as it reports on an earlier schedule.
ANZ provides a trading update, which is not required to detail earnings, on Friday. CBA boosted its interim dividend by 20 percent to A$1.64 but said its final dividend was likely to be slightly lower than a year ago.
The bank's shares have risen nearly 30 percent in the past year, behind Westpac's 33 percent rise, but ahead of ANZ on almost 28 percent and NAB on 25.5 percent. All four banks were well ahead of a 16 percent gain in the benchmark index.
CBA said its Tier I capital, a measure of the bank's ability to absorb losses, was at 10.6 percent at December 31, up from 10 percent in June.