Related – CBA Sells CFS Stake, Flags $1.5b COVID Charge
Commonwealth Bank has set aside $1.5 billion for potential defaults on account of COVID-19-related shutdowns.
The provision, announced in Wednesday’s third-quarter trading update, takes the total forward provisions by the big four banks
to just over $4.49 billion.
New accounting rules require banks and some other companies to estimate future losses, write-downs, impairments rather than account and provide for them after the loans have gone bad or the mortgagee has collapsed.
CBA joins its other rivals in taking a hit from the COVID-19 related restrictions that resulted in economic activity coming to a standstill and led to business closures.
Westpac has taken a $1.6 billion charge. ANZ has put aside $1 billion in COVID-19 provisions, while NAB has made provisions for $807 million.
While Westpac and ANZ have deferred dividend payouts, CBA completed its $3.5 billion interim dividend payment in March.
Australia’s largest bank reported that cash profit for the third quarter from continuing operations was $1.3 billion.
Net profit for the March quarter from continuing operations was $1.3 billion, as operating income remained flat.
The Commonwealth Bank said the $1.5 billion charge was for the potential longer-term impacts of COVID-19.
It said it has considered a range of scenarios and in its base case scenario and expects unemployment to hover around 8% in 2020 and 2021 while housing prices may fall 11% over three years.
It also took a $135 million charge relating to customer remediation in the wake of the banking royal commission, which pushed up operating expenses by 5% during the March quarter.
The bank’s total provisions have risen to $6.4 billion.
Loan impairment expense was $1.6 billion in the March quarter or 80 basis points of gross loans and acceptances. (0.8%).
The bank’s shares rose 1.1% to $60.37.
CBA separately announced it would sell a 55% stake in Colonial First State to global investment firm KKR for $1.7 billion.
“The transaction is consistent with CBA’s strategy to focus on its core banking businesses and to create a simpler and better
bank, while allowing CFS to become a more focused standalone business,” the bank said.
The sale will result in a post-tax profit of $1.5 billion and lift CBA’s CET1 capital ratio by another 30-40 basis points, the bank said, helping offset the $1.5 billion forward provision.
CBA has previously sold CFS Global Asset Management to Japan’s Mitsubishi, the Comminsure business to AIA as well as stakes in its former financial advisory businesses.
