Commonwealth Bank CEO Ian Narev has sounded a note of caution about volatility in global and domestic markets, even as Australia’s largest lender posted record first-half earnings.

CBA’s cash profit – a key measure that banks use to reflect underlying performance – surged 14 per cent to $4.27 billion in the six months ended December 31, on the back of higher revenue growth and fewer bad loans.

The bumper result, which topped market expectations despite lacklustre conditions in the broader national economy, enabled the board to reward shareholders with a handsome 12 per cent increase in interim dividends.

Despite the impressive headline figures, however, CBA shares remained relatively flat, easing $1.18 or 0.25 per cent to $75.73 as investors focused on the bank’s bearish assessment of the national economy.

Looking ahead, Mr Narev said the bank remains cautious in its outlook for the Australian economy this year, amid continued global volatility and few signs of domestic improvement beyond the housing market.

“However, growth forecasts for developed economies have improved, consumer spending over the holiday season was generally higher than last year, corporate balance sheets remain strong, there is positive activity in the housing sector, and the Australian dollar has become more competitive,” he said.

“So, all in all, we continue to assume that any improvements in economic activity in the next year will be gradual rather than dramatic. We will stick to our proven strategy, and maintain business settings that reflect both the risks and the opportunities of this economic environment.”

There was little evidence that Australia’s non-resources sectors, other than housing, were significantly improving, he added.

CBA reported strong deposit growth in the first half of 2013-14, up $40 billion to $426 billion year-on-year.

Customer deposits now account for 63 per cent of the bank’s total funding.

The board declared an interim dividend of $1.83 per share, fully-franked, up from $1.64 in same period last financial year.

The dividend will be paid on April 3, while shareholders who buy on or after February 17 will not be eligible for payment.