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Record profits for Australia's Commonwealth Bank

Wednesday, August 10, 2016 - 09:47
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Australia's biggest bank, the Commonwealth, sounded a cautious note about the country's economic outlook Wednesday even as it posted a record A$9.23 billion (S$9.5 billion) in annual profit.

[SYDNEY] Australia's biggest bank, the Commonwealth, sounded a cautious note about the country's economic outlook Wednesday even as it posted a record A$9.23 billion (S$9.5 billion) in annual profit.

The Commonwealth Bank's performance is closely watched to provide guidance on the health of the Australian economy in the current low interest-rate environment.

CBA chief executive Ian Narev said the company remained positive about Australia's economic prospects but warned that the nation's nominal growth, which is not adjusted for inflation, needed to strengthen.

Reflecting softness on the income side of the economy, Australia's nominal GDP grew by 0.5 per cent in January-March for an annual reading of 2.1 per cent. It was far below real GDP of 1.1 per cent in the quarter for a year-on-year figure of 3.1 per cent.

"Income growth inside and outside Australia remains weak, so people are not feeling better off," Mr Narev said in a statement.

"When combined with ongoing global economic and political uncertainty, this makes households and businesses cautious, and hesitant to respond to monetary stimulus."

Cash profit, the bank's preferred measure of earnings that strips out one-off costs, rose three per cent to A$9.45 billion for the year to June 30 compared to the previous 12 months, broadly matching analyst expectations.

Net profit was up two per cent at A$9.23 billion while cash earnings for the six months to June 30 slipped three per cent compared to the July-December period.

Earnings from its retail banking division - the largest in the bank - rose 11 per cent to A$4.44 billion, while business and private banking grew by five per cent for the period.

But CBA's bad debts jumped 27 per cent, weighing on profits, on higher provisions for resource, commodity and dairy exposures.

The bank announced a final dividend of A$2.22 per share, leaving the final payout to shareholders at A$4.20, which was unchanged from the previous year.

"It's a strong, solid result, but there's not a lot in this result that would want to make me buy this company on open," IG Markets' strategist Chris Weston told AFP.

"The outlook that we've seen is fairly benign, there's downside risks to Australian economics and Ian Narev said there's going to be more of the same coming through."

Australia's economy is charting a rocky path away from mining-dependent growth, with the central Reserve Bank of Australia last week cutting interest rates to a new record low of 1.5 per cent to boost non-resources sectors.

Banks' profits have been under pressure in recent months amid uncertainties in financial markets and the economy, and over fears of rising bad loans.

Financial institutions are also meeting new requirements to hold more reserves as a buffer against mortgages, and tougher regulations to dampen the housing market amid concerns the sector could overheat.

CBA said its common equity Tier 1 ratio - a measure of the capital it has available to absorb losses - rose 10.6 per cent compared to 9.1 per cent in the prior year.

The bank last year announced a plan to raise A$5 billion to meet the capital buffer requirements, which are part of a global effort to make the financial sector more resilient to shocks.

Canberra has also stepped up pressure on the nation's big four banks - CBA, ANZ, National Australia Bank and Westpac - to explain why they did not fully cut their home-loan rates when the central bank slashed the cash rate last week.

Prime Minister Malcolm Turnbull has announced that the four large lenders - among the developed world's most profitable - will have to face a parliamentary committee for an annual grilling to explain their actions.

AFP