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Commonwealth Bank profit down but still billi -

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ELEANOR HALL: Australia's biggest home lender, the Commonwealth Bank, today announced a
multi-billion dollar profit, making it the envy of its competitors. The bank's bottom line has
fallen 7 per cent, but the $4.4 billion profit is a better result than expected.

The bank's chief executive Ralph Norris says he's still cautious about the year ahead and that
unemployment poses a major risk to the pace of Australia's economic recovery.

Joining me now is business editor Peter Ryan. So Peter, how has the Commonwealth Bank managed to
deliver such a massive profit in the midst of a global financial crisis?

PETER RYAN: Well Eleanor this result is a stellar one, it beat forecasts as you said and
Commonwealth Bank shares rose more than 2 per cent or over a dollar when trading opened this
morning - that's up to a 10-year high. But this really does underscore how well Australian banks
are positioned compared to the rest of the world. Australian banks are well capitalised, they've
taken a conservative approach to risk, and they're still delivering billions of dollars for

Now this 7 per cent fall in profit was caused by rising impairments in loans because of the
downturn, but when that significant factor is taken out, the annual profit is down just 1 per cent
to $4.7 billion and that's been bolstered by last year's acquisition of Bank West.

However that's the good news, the Commonwealth's chief executive Ralph Norris says there are still
uncertain times ahead and he's certainly not calling an end to the crisis. Mr Norris believes that
the worst is not over, especially given that unemployment is yet to peak.

RALPH NORRIS: The Australian economy has been more resilient than many had predicted a year ago,
and it is pleasing to see that there is some evidence of the beginnings of an economic recovery and
improvements in business and consumer confidence.

But there are still significant risks on the downside. Overall credit growth in Australia is
slowing, and economic conditions will remain challenging for the group and many of its customers in
the coming year. We understand that the worst is not necessarily over for our customers, and in
particular we expect unemployment to continue to rise.

ELEANOR HALL: That's the chief executive of the Commonwealth Bank, Ralph Norris. Now Mr Norris says
any rise in unemployment would see mortgage default spiral, is the bank prepared for that Peter?

PETER RYAN: Well Ralph Norris acknowledges that there's a lot of stress out there and this year
he's taken a battering from the Commonwealth's association with Storm Financial where the bank
provided loans to customers who should have been refused and Mr Norris has admitted that wasn't one
of the bank's better days.

So he's mindful about this, firstly in residential mortgages but the CBA says its mortgage book is
in relatively good shape. He says many borrowers have maintained their payments at last year's
interest rate levels, so they're well positioned to handle any increases in the official cash rate.

Even so the bank has been stress testing for various scenarios, for example they tested more than
1200 higher-risk commercial clients, they say only two needed to be regraded. However, there is
growing evidence of stress in the overall business sector, especially in commercial property,
mining services and leisure - and these are areas that have been bearing the brunt of the downturn.

Ralph Norris says the Commonwealth will continue to be compassionate but it will be calling in
loans when and where it has to.

RALPH NORRIS: It's fair to say that there are a lot of good operators in this, in all of these
sectors, and the fact of the matter is that some of them, most of them will survive this particular
crisis. There will be some at the margin that won't, and so really it's a case for us to make sure
that you know, we're not lending good money after bad.

And it's making sure that were obviously supporting those clients who we see will come through the
crisis or the cycle in a whole way.

ELEANOR HALL: That's the CEO of the Commonwealth Bank, Ralph Norris, and our business editor Peter