- Wednesday, October 16, 2024
SYDNEY - Commonwealth Bank of Australia (CBA), the largest bank in Australia by market value and the country's leading mortgage lender, has announced a 6% decrease in its annual net profit. The bank also issued a warning, stating that downside risks are growing as higher interest rates begin to impact mortgage customers and cost-of-living pressures persist.
According to CBA's financial statement, net profit for the 12 months ending in June dropped to 10.09 billion Australian dollars (US$6.60 billion), down from A$10.77 billion in the previous year. However, when measured by cash earnings - a metric commonly followed by analysts that excludes hedging and gains/losses from acquisitions and asset sales - the bank reported a 6% rise to A$10.16 billion compared to the previous year. Cash earnings for the second half of the fiscal year declined by 3% compared to the first half.
CEO Matt Comyn acknowledged that the Australian economy has shown resilience due to factors such as population growth, high commodity prices, and low unemployment. However, he also highlighted the emerging signs of downside risks caused by rising interest rates and the financial strain on Australians due to increased cost-of-living pressures.
Despite these challenges, CBA emphasized that its portfolio quality remains solid, with arrears and impairments below long-term averages. This reflects the low levels of unemployment and high levels of consumer savings and repayment buffers in Australia. However, troubled and impaired assets increased to A$7.1 billion from A$6.4 billion in fiscal 2022, primarily driven by growth in the construction and commercial property sectors.
Furthermore, total impairment provisions rose to A$5.95 billion from A$5.35 billion in fiscal 2022. CBA attributed this increase to ongoing cost-of-living pressures and rising interest rates affecting both consumers and corporates.
The ultra-competitive home-loan market remains a factor influencing CBA's net interest margin (NIM), which measures the difference between the bank's funding costs and the interest charged on loans. For fiscal year 2023, CBA's NIM increased by 17 basis points compared to the previous year, reaching 2.07%. However, it experienced a 5 basis point drop in the second half of the year compared to the first half.
In conclusion, despite challenges in the Australian housing market and the impact of rising interest rates, Commonwealth Bank of Australia remains focused on maintaining a strong portfolio and addressing the financial strain faced by its customers amidst cost-of-living pressures.
CBA Reports Increase in Margins and Growth Across Core Units
CBA, one of Australia's leading banks, has reported an increase in margins for the year due to the rising interest rate environment. However, this growth was partly offset by increased competition, especially in the home lending sector. Despite this, CBA expressed satisfaction in its ability to meet a significant portion of its funding requirements through customer deposits, which accounted for 75% of total funding. This increase in deposits came from both retail and institutional customers.
In terms of core units, CBA saw growth across the board. Retail banking services cash earnings reached A$5.16 billion, up from A$4.91 billion the previous year. Business banking cash earnings also experienced a substantial increase, reaching A$3.97 billion compared to A$3.01 billion in the previous year. However, institutional banking and markets earnings decreased slightly by 3%, from A$1.05 billion to A$1.03 billion.
The CEO of CBA, Matt Comyn, acknowledged that the bank is witnessing a moderation in consumer demand and a slowdown in economic growth. This is particularly affecting small- and medium-sized business customers, and the bank is closely monitoring the impact of reduced discretionary spending on these businesses.
Despite these challenges, CBA's directors declared a final dividend of A$2.40 per share, reflecting an increase from A$2.10 in the previous year. This decision reflects the bank's strong capital position.
CBA's closely watched Common Equity Tier 1 capital ratio, which measures its ability to withstand financial shocks, was at 12.2% at the end of June, showing a modest increase of 10 basis points compared to the end of December.
Based on its strong capital position, CBA plans to launch a further A$1 billion on-market share buyback in fiscal 2024, subject to market conditions. This move is expected to reduce the bank's CET1 ratio by approximately 20 basis points. In fiscal 2023, CBA successfully completed a A$3 billion on-market share buyback.
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