Record profits for Australia’s Commonwealth Bank

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SYDNEY: Australia’s biggest lender Commonwealth Bank sounded a cautious note about the country’s economic outlook on Wednesday even as it posted a record Aus$9.23 billion (US$7.08 billion) in annual profit.

The Commonwealth Bank’s performance is closely watched for 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 percent in January-March for an annual reading of 2.1 percent. It was far below real GDP of 1.1 percent in the quarter for a year-on-year figure of 3.1 percent.


“Income growth inside and outside Australia remains weak, so people are not feeling better off,” 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 percent to Aus$9.45 billion for the year to June 30 compared to the previous 12 months, broadly matching analyst expectations.

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

Earnings from its retail banking division – the largest in the bank – rose 11 percent to Aus$4.44 billion, while business and private banking grew by five percent for the period.

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

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

Shares in CBA closed 1.29 percent lower at Aus$77.40.

‘Strong, solid result’
“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 Agence France-Presse.

“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 record low of 1.5 percent 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 having to deal with 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 percent compared to 9.1 percent in the prior year.

The bank last year announced a plan to raise Aus$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

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