By Alice Uribe

SYDNEY--Commonwealth Bank of Australia posted a rise in third-quarter profit driven by lower loan impairment charges, strong home loan funding volumes and growth in business lending.

The bank, Australia's biggest by market value and the country's largest mortgage lender, reported an unaudited net profit of 2.4 billion Australian dollars (US$1.88 billion) for the three months through March. No comparable figure was released, but it represents an increase of about 28% from the A$1.3 billion unaudited profit reported a year ago.

Cash earnings--the measure followed by analysts that strips out items including hedging volatility and losses or gains on acquisitions and asset sales--totalled A$2.4 billion. The bank said it was up 24% on the quarterly average of the prior six months, and this was mainly driven by lower loan impairment charges.

"Our disciplined focus on operational excellence was reflected in continued strong operational performance in the March quarter," said Chief Executive Matt Comyn. This was highlighted by strong home loan funding volumes, particularly through our proprietary network, and business lending continuing to grow at greater than three times system levels."

CBA moderately reduced its collective credit provisioning in the third quarter due to an improved economic outlook, but said it remains cautious as the pandemic recovery continues.

It reported that total credit provisions declined by 4.4% to A$6.5 billion in the three months through March, while troublesome and impaired assets fell to A$7.8 billion, from A$8.2 billion in the December quarter.

"Provisioning coverage nevertheless remained strong, with the bank continuing to adopt a cautious approach to managing risks across its lending portfolios as the recovery continues, particularly as customers transition from Covid-19 temporary support measures put in place during the pandemic," said CBA.

Of 158,000 deferred home loans totaling A$54 billion, 81% have returned to terms prior to the pandemic, 10% are closed, 4% have switched to interest only arrangements and 1% are impaired or restructured. The remaining 4% need ongoing assistance.

Still, CBA said there was a small increase in home loan portfolio arrears in the third quarter as its deferral program ended, with further modest increases expected in coming months.

CBA reported a common equity tier 1 ratio of 12.7%, up 10 basis points in the quarter after payment of the interim dividend.

"A strong surplus capital position creates flexibility for the board in its consideration of capital management initiatives. The timing and extent of any such initiatives is dependent upon a continued trend of domestic economic improvement, our ongoing assessment of portfolio credit quality and regulatory guidance," CBA said.

Write to Alice Uribe at alice.uribe@wsj.com

(END) Dow Jones Newswires

05-11-21 1903ET