Some investors seems a little underwhelmed, others were more accepting – but whatever the reaction the Commonwealth Bank’s interim result has set the tone for the rest of the sector for their interims over the next two months.
The big three rivals – Westpac, NAB and ANZ all report in April after the rule off on March 31. Bendigo and Adelaide reports its December half next week and the Bank of Queensland will report its interim (for the half year to February) in mid April.
The CBA has raised expectations on dividends but also softened hopes among some investors for a bigger payoff.
Higher dividends will come for the second half, but no buybacks – that would be too inflammatory with the Reserve Bank helping fund their balance sheets with ist Term Funding facility and targeting an ultra low cash rate of 0.1% for the next three years at least – giving the banks certainty of funding costs and protection for their net interest margins.
CBA had a net interest margin of about 2.11% ahead of the pandemic but in the latest half fell 10 basis points to 2.01%. Its peers are all under 2%. That margin will be more stable for the next three years, thanks to the Reserve Bank.
Shares in the CBA rose by 0.3% early on yesterday but then turned lower to end down nearly 1.5% at $86.12.
The easiness represented some judicious profit taking after the 25% plus run up in the share price since last November.
The interim dividend of $1.50 a share was better-than-expected (analysts thought $140 to $1.45) and the $3.9 billion cash profit was in line with expectations.
And the bottom line was that the bank has so far survived the pandemic in good shape, with more capital and a handle on bad debts, even though another $883 million was tucked away for a rainy day – which could start when the JobKeeper and JobSeeker payments end in late March.
At the peak CBA had 145,000 home loan customers with $51 billion of loans and 67,000 small and medium-sized businesses with $15.7 billion of loans deferring their repayments.
As of January 31, home loan deferrals were down to 25,000 customers and $9 billion of loans, and SME deferrals to 2,000 customers and $300 million of loans.
CBA’s common equity tier one capital ratio of 12.6% is a full percentage higher than it was at June last year (the minimum is 10.5%) – and can absorb whatever losses might flow without generating stress within the financial system.
The bank funded itself through deposits and the RBA’s TFF. It like its peers have eased off accessing markets here and offshore.
“Australia is relatively well-positioned having started from a position of fiscal and economic strength,” CEO Matt Comyn said in yesterday’s release from the bank.
“We have a solid pipeline of infrastructure projects, the outlook for mining and agriculture is strong, and the community has benefited from the government’s significant income support measures.”
Mr Comyn said despite this positive outlook, there were still health and economic risks that could slow down the recovery, and it continued to monitor its loan portfolio for signs of stress, and to support customers.
No more warnings about rising unemployment, businesses closing or falling home prices. A lot has changed in a year and the CBA has survived (and survived the tidal wave of bad publicity in recent years as well).
