The Commonwealth Bank (CBA) has surprised with better than market forecast cash earnings of more than $4.2 billion, a record for the bank, with a 12% jump in interim payout to shareholders.
That was after the bank reported a 13% rise in cash earnings for the September quarter to $2.1 billion.
After a strong rally since Friday of last week, and the ANZ’s bullish first quarter update yesterday, the CBA report today and cautious but generally positive commentary, will help underpin the new confidence in the 2014 performance of the big four banks.
The CBA said that statutory net profit after tax (or NPAT) rose 16% to $4.207 billion. Cash after tax profit was $4.268 billion, up 14%.
Significantly, the bank said its cash Return on Equity increased by 80 basis points (0.80 of a percentage point) to a very high 18.7% as cost constraints and higher income flowed through to fatter returns. In fact the bank’s net interest margin shrank slightly in the latest half year.
The CBA boosted interim dividend 12% to $1.83 per share.
"The dividend payout ratio (cash basis) of approximately 70 per cent is consistent with the Board’s revised dividend policy, announced in August 2012, which increased the payout ratio for the interim dividend," the CBA said in this morning’s statement.
The interim dividend, which is fully franked, will be paid on April 3, and the ex-dividend date is 17 February 2014. The Dividend Reinvestment Plan will continue to operate, but the CBA said no discount will be applied to shares issued under the plan for this dividend. In other words, the bank wouldn’t mind is shareholders took the cash.
The bank said its NZ banking business played a major part in the solid performance, with cash earnings up 16% for the half year, as the Kiwi economy continued to grow strongly, thanks to the dairy boom and strong building and construction activity in housing and the rebuilding of Christchurch.
The CBA said cash earnings from Bankwest surged 67% in the latest half year.
CBA 1Y – CBA surprises on the upside – boosts dividend payout 12%
Commenting on the result, Group Chief Executive Officer, Ian Narev said in the statement: “This result again demonstrates the benefits of our long term strategic priorities – people, technology, strength and productivity. All of our businesses have performed well. We have strengthened our focus on enhancing the financial well-being of our customers and have used our leading technology platform to deliver innovative products and services to business and personal customers".
"The results show that our customer focus creates value for all our shareholders, including the 800,000 Australian households who own our shares directly, and the millions more who own them through their superannuation.
"The strong revenue growth we have achieved, in what has been a period of relatively subdued economic activity, demonstrates the success of our commitment to meeting the needs of our customers.
"Our on-going productivity initiatives have helped us maintain our expense discipline and, at the same time, deliver revenue growth. So, we have again been able to invest for the long term benefit of the business, with nearly $600m of investment in this half," he said.
The CBA said that the net interim margin eased three points to 2.14%, but group net interim income rose 8%, and other banking income was up 6% – both strong rises. Average interest earning assets jumped $41 billion to $690 billion and business average interest bearing deposits were up $29 billion to $405 billion.
Looking to the rest of the year, the CBA said that; "while some of the Group’s customers are facing challenges, this is not translating into a deterioration of credit quality. However, given the uncertain outlook for both the global and domestic economies, the Group remains cautious, maintaining a strong balance sheet with high levels of capital and provisioning. Liquidity was $137 billion as at 31 December 2013."
And Mr Narev said: “We remain cautiously optimistic about the economic environment for this year. We have seen, in recent weeks, that there is still volatility in global markets. The risks presented by that volatility continue to supress business confidence. As a result, there is little real evidence, so far, of a meaningful increase in investment in the rest of the non-resource sector of the Australian economy, other than in housing.”
And Mr Narev added: “We remain cautiously optimistic about the economic environment for this year. We have seen, in recent weeks, that there is still volatility in global markets. The risks presented by that volatility continue to supress business confidence. As a result, there is little real evidence, so far, of a meaningful increase in investment in the rest of the non-resource sector of the Australian economy, other than in housing.”
CBA 2014 Half-year results presentation
