UPDATE 2-Australia's Commonwealth Bank posts profit fall after 'difficult' year of scandal

year of scandal@

* CBA reports 4.8 pct lower FY18 cash profit to A$9.2 bln

* Unaudited result marginally better than polled forecast

* Final $4.31 a share dividend up 2 cents from previous yr

* Shares open 1.1 pct higher after result (Recasts, adds CEO and analysts' quotes)

SYDNEY, Aug 8 (Reuters) - Commonwealth Bank of Australia (CBA) on Wednesday reported a 4.8 percent fall in full-year cash profits of A$9.23 billion, driven by higher funding costs and regulatory charges related to an ongoing inquiry into financial-sector misconduct.

The result caps a challenging year for Australia's biggest lender as it battled hefty penalties for malpractices that forced a CEO change, and a severe blow to its reputation from scandals exposed by the ongoing Royal Commission inquiry.

"This has been a horrible year for the Commonwealth Bank, with a laundry list of disasters in the last 12 months," Morningstar banking analyst David Ellis said. "But the underlying business is going ok, given the circumstances."

The unaudited result was slightly better than an average forecast of A$9.1 billion for the year to June 30 from five analysts polled by Reuters, as higher prices for risky home loans and reduced deposit rates help offset more expensive wholesale funding.

The result excludes the performance of the life insurance unit CBA sold to AIA Group Ltd in 2017 and its loss-making digital banking unit in South Africa, which the bank said was being sold for an undisclosed sum.

Cash profit, a measure that excludes one-offs and non-cash accounting items, is closely watched by investors.

On a statutory basis, net profit fell 4 percent to A$9.38 billion after CBA booked a A$700 million charge to account for a record penalty to settle money laundering charges brought against it last year. The last time it posted a weaker profit was in the year to June 2009, according to Thomson Reuters I/B/E/S.

"It has been a difficult 12 months," said Chief Executive Matt Comyn, who replaced Ian Narev in April with a brief to regain the trust of regulators and the Australian community.

"Despite the challenges we have faced this year, the fundamentals of our business remained strong."


During the year, CBA admitted its traders had attempted to rig a key benchmark rate and that it had breached money laundering and terror financing laws more than 53,000 times.

The bank is now defending two shareholder class actions over its alleged failure to disclose the problems, while the banking regulator has imposed an extra A$1 billion capital charge while it fixes its extensive governance and risk management issues.

Operating income grew 2.6 percent helped by higher loan margins over the year, the bank said. However, this was more than offset by higher expenses including provisions for regulatory and compliance projects.

Despite weaker lending volumes, net interest margins, a key measure of profitability, were 5 basis points higher at 2.15 percent, driven by higher prices for interest-only and investor home loans, and lower rates paid on deposits. Net interest income was 5 percent higher at A$18.34 billion.

"It is a reasonably challenging operating environment but credit quality remains benign and margins performed better than expected," Macquarie Bank analyst Victor German told Reuters.

CBA declared a fully franked final dividend of A$2.31 per share for a yearly dividend of $4.31 per share, 2 cents higher than the previous year, the bank said.

CBA shares were 1.1 percent higher at the open, in a largely unchanged market.

They are down 13 percent in the year since Aug. 3 2017, when the money-laundering allegations first surfaced.

In a bid to cut risk and get back to traditional lending, CBA said in June that it would hive off its wealth management and mortgage broking businesses and explore whether to divest its general insurance arm. ($1 = 1.3484 Australian dollars) (Reporting by Paulina Duran in Sydney and Rushil Dutta in Bengaluru; Editing by Stephen Coates)