Commonwealth Bank has beaten market expectations with a $4.48 billion first-half cash profit amid pressure from record low interest rates, natural disaster impacts, and rising loan impairments.
Shares in Australia’s biggest bank jumped by more than 2 per cent at the open of trade to a near three-year high of $86.62 after the company beat the $4.34 billion interim profit figure tipped by analysts.
However, a flat net operating income, as well as higher expenses, and a 12.5 per cent increase in loan impairments meant cash profit for the six months to December 31 was 4.3 per cent down on last year’s $4.68 billion.
The bank will hold its fully franked interim dividend flat at $2 per share, as forecast.
CBA’s home lending was up 4.0 per cent for the period, while business lending rose 3.0 per cent.
Loan impairment expenses jumped 12 per cent to $649 million, representing 17 basis points of gross loans after factoring in the summer bushfire catastrophe.
Group net interest margin – the cost of funding loans compared to what it charges for them – was up one basis point at 2.11 per cent.
The bank’s Common Equity Tier 1 ratio of 11.7 per cent is well above APRA’s unquestionably strong 10.5 per cent benchmark.
— CommSec (@CommSec) February 11, 2020
Chief executive Matt Comyn said the company remained positive about the momentum of the economy despite the recent bushfire crisis, which resulted in $83 million of insurance claims provisions at the bank during the first half.
Fires and drought were also behind a $100 million loan impairment overlay.
“Clearly, in the near term, we’ll [have] to deal with the impact from the drought, the bushfires and now global uncertainty around the coronavirus,” Mr Comyn said on Wednesday.
“We do expect that that’s going to weigh on both sentiment as well as GDP in this quarter and in the next … but we think the combination of both the recovery and rebuild, and also some of the underlying strength in the Australian economy, will start to come through in the back half of this calendar year.”
He was also bullish about the prospects for the local property market and jobs figures.
“We’ve seen an improvement, certainly, in the housing market,” Mr Comyn said.
“We’ve seen recent unemployment figures which have been very strong, in NSW some of the lowest unemployment rates since the 1970s.”
The bank said operating expenses increased 2.6 per cent to $5.4 billion due to wage inflation and higher IT, risk and compliance costs.
Risk and compliance spend increase to $196 million from $142 million a year ago, though remediation booked for wealth customers reduced to $30 million, down from $279 million in the prior corresponding period.
Customer remediation charges were $639 million in the June half.
CBA on Wednesday also flagged a $500 million dividend reinvestment plan, while “active consideration” is being given to capital management.
Observers expect the bank to announce a share buyback or special dividend in August.
“Good progress” has been made on customer remediation, with $630 million of the $2.7 billion provisions made since 2017 now refunded to customers.
CBA shares were 2.2 per cent higher after 15 minutes of trade on Wednesday at $86.58.