Australia's CBA posts better than expected half-year profit

Sydney

COMMONWEALTH Bank of Australia posted a better than expected half-year profit and said it was actively considering returning capital to shareholders, driving its shares higher to a near five-year peak.

The results show Australia's biggest lender may be leaving scandals behind and cementing its dominance even as the key home loan market is saturated and interest rates are at record lows.

CBA reported on Wednesday that cash profit from continuing operations, a measure that excludes one-offs and non-cash accounting items, was A$4.48 billion (S$4.2 billion) for the six months to Dec 31.

While that was down 4.3 per cent compared to the same period of last year, it beat the A$4.33 billion expected by six analysts polled by Reuters, with strong home lending helping offset a hit from higher insurance payouts due to bushfires, and lower fees.

"The result is better than we had expected," said Sean Sequeira, chief investment officer of Australian Eagle Asset Management, which owns shares of CBA. He said investors had expected either a share buyback or special dividend to be announced with the results.

The bank maintained an interim dividend of A$2 per share and said its strong capital position would allow it to consider future "capital management initiatives". CBA's common equity tier 1 capital ratio stood at 11.7 per cent, well ahead of the regulator's minimum requirement of 10.5%.

"The flexibility that we've got enables us to think about that in the near term," CEO Matt Comyn told analysts in Sydney, referring to the potential return of more capital. Analysts estimate CBA holds about A$5 billion of excess capital.

Commonwealth Bank shares jumped as much as 4.5 per cent to A$88.56, its highest level since May 5, 2015.

Half-year profit was hit by a drop in non-interest income due to bushfire-related insurance payouts and reduced fees for wealth management customers - a fallout of the Royal Commission inquiry into the financial sector.

Home loans, the main earnings generator for Australian banks, grew about 4 per cent during the first half.

The Reserve Bank of Australia (RBA) cut interest rates thrice in 2019 to a record low, which helped a struggling property market stage a robust recovery in the second half of 2019, with home prices and home building approvals rising.

Net interest margin (NIM), a closely watched gauge of profitability showing the difference between interest paid and earned, rose one basis point to 2.1 per cent from the second half of 2019.

However, the lender said that it expected the previously announced cash rate reductions to hit NIM by 8 basis points by June 30, 2021. Net interest income rose 1.7 per cent to A$9.29 billion for the six months ended Dec 31.

Despite the economic impact of a long drought, bushfires and global uncertainty around the novel coronavirus, CEO Mr Comyn said the bank expected the momentum in lending to continue. "We remain optimistic about the Australian economy and outlook," Mr Comyn said. "We've seen an improvement, certainly, in the housing market." CBA had "both the capacity and the appetite to lend more", he said. REUTERS