COMMONWEALTH Bank has warned its dividends may fall after first half core earnings slumped 16 per cent as the bank racked up bad corporate debts and earnings in its wealth management arm fell.
The result reflects the impact of the global economic crisis and the country's biggest lender warned the operating environment will continue to deteriorate as economies slow or fall into recession.
CBA said it remains cautious and will maintain a conservative approach to provisioning for bad debts, telling shareholders that dividend levels cannot be guaranteed.
"Your board was particularly mindful of the needs of our shareholders in reaching its decision to declare an interim dividend at the same level as last year's," chairman John Schubert said.
"However, in the current uncertain economic environment we cannot guarantee to maintain future dividends at past levels."
CBA shares fell 30 cents, or 1.01 per cent, to $29.30 at 11.02am (AEDT).
An almost fivefold increase in impairment expenses to $1.607 billion hit CBA's first half cash profit, its core earnings measure, which fell 16 per cent to $2.013 billion, and in line with the guidance.
However, net profit for the six months to December rose 9 per cent to $2.573 billion, after strong lending and deposit growth at its retail banking arm.
Chief executive Ralph Norris said while the fall in cash earnings was disappointing, the result was solid given the difficult economic and financial markets conditions.
"It was particularly pleasing to see our banking businesses delivering good growth in operating earnings which is a testament to the strength of our balance sheet and brand," he said.
CBA's net interest margin fell two basis point to 2.04 per cent from a year earlier.
However, first half net interest income rose 17 per cent to $4.543 billion, while total operating income grew by 15 per cent to $8.016 billion.
CBA also succeeded in controlling operating costs, which fell 3 per cent.
The bank declared an interim dividend of $1.13 per share, unchanged from the previous first half.
As at December 31, CBA has cash and liquid assets of $12.6 billion. Its Tier 1 capital ratio was 8.75 per cent.
CBA's strong cash position means it can consider acquisition opportunities, chief financial officer David Craig told journalists.
"This is a once in a generation opportunity and one of the reasons we're so well capitalised in funding is to able to take those opportunities as they come along," Mr Craig told journalists.
"We look at all opportunities in the market all the time."
However, he said CBA was not currently talking to Suncorp-Metway about buying the bank assurance group's banking unit.
CBA said it expected the volatility and uncertainty in financial market will continue for another 12 months.
The first half impairment charges came because a small group of businesses had gone bust.
Of the $1.607 billion, half was attributable to five names, including a $367 million write off for listed notes issued by ABC Learning Centres.
That caused the premium business services division to record a cash net profit decline of 71 per cent to $205 million.
But CBA's retail banking operation lifted cash net profit by 15 per cent in the half year, following strong income growth.
Home loan income rose 11 per cent to $801 million, while deposit income increased 10 per cent to $1.602 billion.
The rise in deposits came as investor moved money into cash investments because of the uncertainty in financial markets, helping CBA's balance sheet to grow 22 per cent compared to the market's growth of 19 per cent.
The wealth management arm recorded a 56 per cent fall in cash net profit to $175 million, as funds under administration slumped 21 per cent on negative mark to market movements.
Asked if CBA would pass on more Reserve Bank interest rate cuts in full, Mr Craig said the bank had not made that decision yet.
"Funding costs are continuing to go up," he said.
CBA has already achieved 88 per cent of its full year funding target, including funding required for the recent acquisition of Perth-based BankWest.
