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Australia's CBA profit hit by fee cuts, refunds

Cash earnings from continuing operations fall to A$1.70b in Q3; the lender is the latest of the country's "Big Four" banks to turn in a weak result, following inquiry

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CBA says it set aside another A$714 million (S$682 million) to compensate customers in the three months to end-March, while lower fees and rising expenses also dragged on profit.

Sydney

COMMONWEALTH Bank of Australia (CBA) on Monday said cash profit dropped 28 per cent in the third quarter as the country's biggest lender was whacked by falling fee income, rising refunds for wronged customers and squeezed margins.

It is the latest of Australia's "Big Four" banks to turn in a weak result, weighed down by millions of dollars in provisioned payments to reimburse customers whom a public inquiry found had been overcharged or wrongly billed for services not provided.

CBA said it set aside another A$714 million (S$682 million) to compensate customers in the three months to end-March, while lower fees and rising expenses also dragged on profit. That takes total set aside for remediation over A$2 billion.

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Shares in the lender fell to a three-week low in early trading, before recovering slightly to be 2.67 per cent lower at noon, while the broader market was down 0.4 per cent.

"They are just playing catch-up with everybody else," said Jason Teh, chief investment officer at Vertium Asset Management, which owns CBA shares, referring to its compensation payments. "Obviously the revenue is softer ... the credit environment is softer, the Aussie economy is softer."

Cash earnings from continuing operations fell to A$1.70 billion for the three months ended March 31, CBA said. It reported cash earnings of A$2.35 billion a year ago.

Fee earnings fell as the bank counted the cost of a tough market and what it calls "better customer outcomes", including fee cuts, resulting in about A$415 million in forgone income a year.

Its net interest margin fell slightly.

The lender said the additional A$714 million in customer remediation provisions should be enough. "While these additional provisions are estimates that may change, the bank believes it has adequately provided for currently known banking and wealth customer remediation," the lender said.

CBA and the "Big Four" are still reeling after a quasi-judicial inquiry revealed systematic misconduct in the financial sector last year, with all of them posting their weakest results in years.

"Our absolute focus is on ensuring we are addressing past failings and implementing all of the improvements needed," chief executive officer Matt Comyn said on an investor call, adding the bank expected to refund between A$200 million and A$500 million this calendar year.

In March, CBA halted the demerger of its wealth management and mortgage broking units to focus on refunding customers, mitigating past "issues" and implementing some of the recommendations from the year-long inquiry. REUTERS