At first glance no shocks or surprises in the annual results from the Commonwealth Bank (CBA) this morning – dividend is flat on a year ago with the payment of a final of $2.22 a share making for a full year figure of $4.20 a share.
But there was a lack of confidence in the outlook for the economy and banking in that flat dividend which was equal to 76.5% of profit.
Cash profit rose 3% to $9.450 billion, while statutory profit was up 2% to $9.227 billion, on a 2% fall in revenue in the year to $44.379 billion.
The dividend and results are close to if not spot on where most market forecasts were heading.
But the flat payout does indicate a lack of solid confidence about the outlook for the economy and for banking over the next year.
The bank could have easily lifted the final by a couple of cents a share to send a more confident message to the market and shareholders, but chose not to.
And that hesitancy about the outllok is what we saw in the outlook comments from CEO, Ian Narev:
“Continuing demand for Australian resources, a vibrant construction sector in NSW and Victoria, and employment growth in key services sectors have underpinned real GDP growth and employment stability.”
“However, on-going economic strength will require a lift in the low rates of nominal growth. Income growth inside and outside Australia remains weak, so people are not feeling better off. When combined with on-going global economic and political uncertainty this makes households and businesses cautious, and hesitant to respond to monetary stimulus.”
“At CBA, we are cognisant of the combined impact of weaker demand, strong competition and increasing regulation. An on-going focus on productivity and credit quality will be important. But we remain positive about Australia’s economic prospects, driven by population growth, our proximity to growth in Asia and the attractiveness of Australia as a destination and a trusted source of a broad range of goods and services. So we will continue to manage for the long term, putting customers first and investing for the future.”
The CBA’s net interest margin eased a couple of points to 2.07% (or 2.07 cents in the dollar), but the cost to income ratio dipped 40 points to an efficient 42.4% (or 42.4 cents in the dollar).
Customer deposits jumped 8% or $40 billion to a total of $518 billion, or 66% of group funding, one of the highest levels for years.
In this morning’s statement Mr Narev said “We have pursued a simple, consistent strategy for over a decade now. Continued execution of that strategy, focused on customer satisfaction, innovation and strength, has again driven solid operating performance and balance sheet growth for the Group.”
“In the banking businesses, net interest income growth was supported by continued home and business lending and strong deposit growth, particularly in transaction banking. In other parts of the Group we also saw trading income growth and an increase in funds under administration. Sound cost management saw improvements in the Group’s cost-to-income ratio, and together with income growth, resulted in a 6% increase in operating performance on the prior year”.
“Our capacity to support our customers is directly related to the strength of our balance sheet. As a result of the capital raising and strong organic capital growth throughout the year, we have substantially boosted our capital position. This now places us above any ‘unquestionably strong’ benchmark for CET1 capital.
"With clarity on a number of global regulatory reforms expected by the end of this calendar year, we are confident that we will maintain our position of strength across all required metrics. Notwithstanding the increased capital levels, global volatility and regulation have meant that funding costs have moved higher in the second half of the year.”
Is that reference to higher funding costs, the bank’s way of explaining why it only passed on some of the Reserve Bank’s 0.25% rate cut last week?
