CommBank’s blockbuster $9.9b profit

Even bigger than expected - CBA's blockbuster $9.9b profit


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Commonwealth Bank of Australia reports a 4.6 per cent rise in full-year profit and plans to quit life insurance

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Commonwealth Bank of Australia (CBA) has reported a 4.6 per cent rise in full-year cash profit to $9.88 billion, beating analyst estimates for an $9.8 billion profit, for the year to June 30.

The bank also confirmed it was in discussions with potential buyers of its life insurance businesses in Australia and New Zealand, as revealed by The Australian Financial Review in July.

CBA said it would consider all its options including retaining the business and reinsurance arrangements.

CBA reported a 5pc rise in cash profit to $4.97 billion in the second half, which occurred on the back of mortgage repricing and regulatory intervention in the home loan market. 

Earnings per share were higher than expected coming in 3.6pc higher at $5.74/share compared with $5.55 for  2015-16.

Analysts had been expecting $5.60 a share. 

The final dividend for the second half was higher at $2.30/share, up from $1.99 at the first half, taking the full-year dividend to $4.29 fully franked, up from $4.20 a year ago.​

Return on equity contracted over the year by 50 basis points to 16pc. 

We will continue to strengthen our balance sheet to ensure that we can support our customers through a variety of economic scenarios - Ian Narev, Commonwealth Bank of Australia

The bank has also introduced a discounted dividend reinvestment program with eligible shareholders receiving a 1.5pc discount, which was expected by some analysts as a method of bolstering capital ahead of new capital measures from APRA.

CBA said its common equity tier 1 capital (CET1) ratio was at 10.1pc, below the 10.5pc benchmark set by APRA last month, but said that it was confident it would meet the new benchmark well ahead of the January 2020 deadline.

"We will continue to strengthen our balance sheet to ensure that we can support our customers through a variety of economic scenarios," said CBA chief executive, Ian Narev. 

The annual results have arrived one week after the bank's role in a money laundering scandal was revealed and a day after the board docked the bonuses of its executive team.

The bank also confirmed that it will seek to frame the alleged failure to report 53,000 suspicious transactions that led to the action from financial intelligence regulator AUSTRAC as a single error and therefore liable for a single $18 million fine.

The bank said that it was limited to what it could say at this point however and "it is not possible to reliably estimate the possible financial effect on the group".

CBA maintained its operational risk capital levels. In the analyst slide pack, the bank pointed to increased compliance and risk spending which has risen by 29pc in five years to a cumulative $3.6b, including $230 million in anti-money laundering compliance and reporting processes and systems. 

The nation's largest home loan lender said it had provided $102bin new funding for home loans over the period, helping to grow its home loan balance to $436 billion, led by 10.5pc balance growth in NSW.

Growth was within regulatory benchmarks, CBA said.

Interest-only loans represented 39pc of the book, as APRA pushes all the banks to bring the level of new interest only loans down to 30 per cent.

Credit quality remains strong; the loan impairment expense is 15 basis points of gross loans and acceptances.

However, personal and home loan loan arrears were elevated in Western Australia, while credit card arrears were seasonally higher in the second half, CBA said. 

"Headline indicators show that the Australian economy remains sound overall, albeit variable," Mr Narev said. 

"However many households are concerned about job security, wages and the cost of living.

“Cyclical investment in mining and construction has underpinned our economy for some time. The next wave of more broad-based business investment that we need to secure jobs and lift wages is important."

"Business balance sheets have the capacity, and we have a strong banking system. But global caution remains high due to geopolitical change and less expansionist monetary policy.

“So all of us need to focus on working together to create an environment where businesses continue to invest to create rewarding jobs."

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