Commonwealth Bank has delivered a robust increase in half-year profit and dividends as it benefits from rising interest rates and stronger business lending growth.

The country’s biggest lender on Wednesday reported a cash profit of $5.15 billion for the six months to December 31, a nine per cent increase from the year earlier and in line with analyst predictions.

Its statutory bottom-line result was up 10 per cent to $5.22b.

Chief executive Matt Comyn attributed the stronger result to growth in lending volumes and a recovery in margins as interest rates rose from historic lows.

“While there has been an improvement in margins as the cash rate increase from emergency levels, margins have not returned to pre-COVID levels,” he told investors in a briefing.

“Funding costs have increased significantly, which has also coincided with escalating price based offers across the home loan market in Australia and New Zealand.”

CBA shares slid more than 5 per cent in early trading. By 1045 AEDT, the stock was down 3.1 per cent to $105.85 each in a weak Australian market.

The bank’s operating income for the first half of the year jumped 12 per cent to $13.59b largely driven by growth in home and business lending.

Net interest margin, or the cost of funding loans compared with what the bank charges, climbed 23 basis points from the previous six month period to 2.1 per cent amid a sharp increase in interest rates.

Operating expenses rose five per cent to $5.8b on the back of more staff and technology spending, while the lender also increased provisions for bad loans by $586 million.

The Reserve Bank of Australia last week lifted its benchmark cash rate for the ninth time to 3.35 per cent, a move that is expected to put pressure on borrowers.

“We are conscious that many Australian households are feeling significant strain from rising interest rates, alongside the rising costs of electricity, groceries and other household items,” Mr Comyn said.

“Despite this, consumer spend remains resilient, with signs of spend slowing in pockets.”

The bank has signalled optimism about the outlook, saying the fundamentals of the economy remain solid, with low unemployment, strong exports, and returning migration.

“We expect business credit growth to moderate and global economic growth to slow during 2023,” Mr Comyn said.

“However, we remain optimistic that a soft landing for the Australian economy can be achieved and positive on the medium term outlook for Australia.”

CBA says its capital position remains strong with a Common Equity Tier 1 capital ratio of 11.4 per cent at December end, promoting the bank to increase its on-market share buyback by an additional $1b.

It will also pay a fully franked interim dividend $2.10 per share, an increase of 20 per cent from a year ago.

– AAP