THE Commonwealth Bank (CBA) could become the first bank to implement an interest rate rise independent of the Reserve Bank after conceding its key profit margins were struggling with higher costs.

A number of analysts yesterday downgraded their earnings forecasts for the CBA after its $5.66 billion net profit, a record for an Australian bank, was dissected by the financial markets, reported The Australian.



UBS downgraded the rating on CBA from a buy to neutral, while cuts to the earnings forecasts for the next two years were made by up to 4 per cent.



There was also renewed speculation the CBA, which is the nation's largest bank by market capitalisation, could become the first institution to order an out-of-cycle interest rate rise.



A move by any of the banks is unlikely before the federal election on August 21.



CBA chief executive Ralph Norris said the bank's cost of funding on an average mortgage would rise by 40 basis points in the next year, which would place further pressure on the retail bank's margin.



The pressure intensified in the second half of CBA's previous financial years when margins fell from 2.18 to 2.08 per cent primarily because of higher funding costs and retail deposit rates.



UBS analyst Jonathan Mott cut the earnings per share forecast for CBA by 2 per cent in each of the next two years, and reduced the recommendation from buy to neutral.



Mr Mott said the margin pressure showed there was a growing likelihood banks would lift their lending rates.



"This (margins) remains a keen focus for the market and continues to highlight the need for the major banks to adjust mortgage rates to account for higher funding costs," Mr Mott said.



Citi analyst Craig Williams said while an out-of-cycle rate rise would be unpopular, the banks with the largest residential home lending books, the CBA and Westpac, would feel the most margin squeeze.



"CBA and Westpac are bigger mortgage banks so are feeling more pressure on the current inability to reprice," Mr Williams said.



Read more about the Commonwealth Bank at The Australian.