Commonwealth Bank of Australia Ltd (CBA) chief executive Ralph Norris says the credit crunch, which dragged on the bank's full-year earnings, is likely to last another 12 to 18 months.
"There is still a significant amount of cdo (collateralised debt obligation) instruments out there that are still to be brought to account," Mr Norris told ABC Television.
"Many estimates are that there's possibly another half trillion dollars of that to come to account.
"We are not really going to see a significant level of confidence build up in markets until we get through probably a couple of quarters of non-surprises."
CBA reported a full-year net profit gain of seven per cent to $4.791 billion on Wednesday and increased cash earnings, the bank's preferred measure of profitability, by 4.6 per cent to $4.733 billion.
Rampant earnings growth in previous years was curbed by $930 million worth of bad debts and higher interbank borrowing costs, which blew a $279 million hole in the bank's bottom line, despite its own unpopular rate rises.
"If you look at the performance over the year, it's been a pretty solid one," Mr Norris said.
"Global funding has been a real issue, so there's been quite a significant increase in funding costs."
Mr Norris said the bank's funding book had increased in size by about 15 per cent, yet income on that book fell by five per cent.
The bank recovered an average 16 bases points less on its mortgages than previous years, as the local 90-day bank bill rate increased on Reserve Bank of Australia (RBA) rate rises and off-shore funding costs surged, he said.
We're "looking forward to the interest rate cuts that are forecast for next month," Mr Norris said.
CBA was putting in place another 212 million dollars of provisioning for mortgages to take account of what could be a more stressed economic environment in the next 12 months, Mr Norris said.
The bank had lowered the provisions for mortgage arrears after the consumer book performed better in the 12 months to June than the same period the previous year, he said.
"Those banks that have taken a more cautious or a more prudent approach in their lending are seeing the benefits of that," Mr Norris said.
Mr Norris said CBA had decided not to proceed with the acquisition of ABN Amro Australia for several reasons, including the current market environment and the funding CBA would have to provide to run the business.
"The business is a good business but it does have a number of complex parts," Mr Norris said.
"When you look the funding requirements ... there's a significant capital injection that would have to be made in order to appropriately capitalise the entity."
Mr Norris said CBA had been under no obligation to, nor had it indicated that it would, proceed with the acquisition.
CBA shares closed last week at $43.70, having fallen 26 per cent this year.
