Shareholders in the Commonwealth Bank will get an unchanged full-year dividend of $4.31 a share despite earnings falling for the year to June 30 under the twin weight of the fallout from the royal commission and weaker lending, especially in housing.
Cash net profit fell 4.7% to $8.492 billion while the statutory result dropped more than 8% to $8.571 billion.
Operating income fell 2% to $24.91 billion for the year to June. The bank’s net interest margin fell 5 points over the year to 2.10%, which was unchanged from the December half-year.
The final dividend was set at an unchanged $2.31 a share and the total for the year represents an 88% payout rate, which indicates how desperate the CBA board was to keep shareholders happy after a year that was full tumult, board and senior executive change, a restructure, disciplinary action from regulators, not to mention being criticised in the Hayne Royal Commission.
Customer remediation costs jumped to $2.2 billion from $1.2 billion in 2017-18. Without those extra costs, earnings would have been sharply higher – well above $10 billion for the year to June.
The CBA said that impairment expenses rose 11% in the year to $1.2 billion but that was due to higher bad debts in the business lending area, while there were higher collective provisions for credit cards (with problem areas in parts of western Sydney and Melbourne, according to the CBA).
Housing arrears eased, although the bank said it was seeing “pockets of stress in parts of Perth, Sydney and Melbourne as well.
But the CBA said it saw an uptick in the number of mortgages in negative equity.
“Recent house price softening has resulted in a moderate increase in portfolio loan to valuation ratios including an uptick in accounts in negative equity.
“Based on June 2019 valuations approximately 3.5% of Australian home loan accounts and 4.5% of balances are in negative equity:72% of negative equity relates to Western Australia and Queensland,” the bank said.
CEO Matt Comyn said in the statement issued on Wednesday “While this year’s headline results were impacted by customer remediation costs, revenue forgone for the benefit of customers and elevated risk and compliance expenses, our core business continued to perform well – underpinned by growth in home lending, business lending, and deposits.
“The Group’s balance sheet also remained a key strength. Deposits provided 69% of the Group’s total funding, our Common Equity Tier 1 capital ratio is above APRA’s ‘unquestionably strong’ benchmark, and we have maintained the dividend.
“The progress we are making on divestments further strengthens our capital position. This supports continued investment in our business, and subject to prevailing operating conditions creates flexibility for the Board in its ongoing review of efficient capital management initiatives and the delivery of long-term sustainable returns.”
