Commonwealth Bank huge profit – bring on a true “ Peoples Bank”

The bank said its cash profit for the six months to December 31 was likely to be around $2.9 billion. The consensus of analyst forecasts is for a result of around $2.7bn at Commonwealth Bank.

The profit update comes after the group's major rivals all recorded solid results for the year ended September 30, and underscores the strength of Australia's banks and the local economy, which avoided the worst of the global economic downturn.

The group booked an first half cash profit - a closely watched measure which excludes volatile items - of $2.01 billion a year earlier. The group will release proforma numbers for the year earlier, including BankWest, before it officially releases its results on February 10.

he profit update comes after the group's major rivals all recorded solid results for the year ended September 30, and underscores the strength of Australia's banks and the local economy, which has avoided the worst of the global economic downturn.

Commonwealth Bank's shares jumped on the back of the late afternoon announcement, which is likely to see analysts increase forecasts across the sector. Commonwealth Bank closed at a two-year high of $58.10, up 2.3 per cent, having traded lower for most of the session.

"It's definitely a good story," said Angus Gluskie, a portfolio manager at White Funds Management in Sydney. "It will give everyone a bit more comfort about the fact that banks are recovering rapidly," he said.

The result could also give rise to hopes that Australia's major banks, which have been winning market share from their smaller and international rivals, could look to increase dividends in the not too distant future, Gluskie said.

"The banks are certainly gearing up towards being able to re-increase their dividend, probably in six months time. This update suggests that everything is heading in the right direction, and assuming the bad-debt situation continues to improve, they may be in a position to increase their dividend," he said.

Most of Commonwealth Bank's major rivals - which include Australia and New Zealand Banking Group Ltd, Westpac Banking Corp and National Australia Bank Ltd - have said they expect the bad-debt cycle has peaked.

"There had been some question marks out there about whether we would see bad debts start to rise again as interest rates tighten, but any newsflow that suggests that is not the case is a positive," Gluskie said.

Commonwealth Bank said it has seen solid income growth across its banking business and good volume growth.

It also attributed the stronger result to cost management, while improving equity markets will contribute to an improvement in "investment experience" of around $240 million after tax.

: Dow Jones Newswires