The Commonwealth Bank says unaudited net profit for the three months to the end of September came in at around $2.1 billion, up from $1.85 billion the year before.

The bank’s preferred measure, unaudited cash earnings, also came in at $2.1 billion.

In a statement, the bank says growth in mortgage lending has been modest as low interest rates increase demand for new loans, but also encourage existing borrowers to increase their repayments. But the bank says bad debts have declined.

“Credit quality remained sound, with arrears rates lower in home lending and stable in unsecured consumer lending,” the bank said. “Impaired assets were marginally lower at $4.28 billion.

Strong provisioning levels and coverage ratios were maintained, with the economic overlay unchanged.”

Morningstar analyst David Ellis believes the result puts Commonwealth Bank on the path for a full-year profit of almost $8.3 billion.

“I’m actually expecting a moderate pickup in economic activity in 2014 and running into 2015, and the four major banks, particularly the Commonwealth Bank, is very well place to leverage the recovery,” Mr Ellis said.

He also expects the bank to lift its dividends.

“They need to continue focusing on operating expense management and ensuring the rate of growth in their operating costs does not exceed growth in revenue,” he said.

Commonwealth Bank shares reached another all-time high on the news; at 1:30pm (AEDT) they were 1.5 per cent higher at $78.14 while ANZ, Westpac and NAB were trading lower.