The Commonwealth Bank of Australia (CBA) has cautioned against a build-up of downside economic risks within Australia from ongoing high interest rates and inflation.

The bank, the country's biggest lender, issued the warning on Wednesday as it posted a decline in its first-half profit.

CBA's profit, which continued to surpass expectations, followed on from mortgage lending challenger Macquarie Group stating it was gaining market share, indicating a difficult year for the country's so-called 'Big Four' banks within an environment of reduced margins and fees, Reuters reports.

"As cash rate increases have a lagged impact on households and business customers, we expect financial strain to continue in 2024, with an uptick in our arrears and impairments," said the CEO of CBA, Matt Comyn.

The bank's shares dipped 2.4%, with the wider Australian index falling around 1% at the time of writing.

Following the results, the bank's CEO said the mounting cost of living has led to more households and businesses lowering their spending.

"Inflation is falling but still remains too high," Comyn commented.

"And we expect economic growth to fall below 1.5% this year. Our base case remains a soft landing, and we're expecting these pressures to ease as inflation and interest rates start coming down later this year," he added.

CBA's profit shows the earnings challenges banks are facing in Australia from elevated costs and a contraction in net interest margins (NIM), said the Vice President for Moody's Investors Service, Daniel Yu.

"We expect these headwinds to persist in 2024 as tight competition for both lending and deposits weigh on banks' NIMs and operating costs increase further as the effects of elevated inflation linger," he stated.

CBA's cash profit declined 3.1% to A$5.02 billion ($3.24 billion) for the six months ending 31 December, from A$5.18 billion, as a hike in mortgage competition and increased expenses impacted margins.