The Commonwealth Bank beat expectations to post a record half year cash profit of $4.804 billion, a 4% rise. Analysts had forecast $4.75 billion.
And Australia’s largest bank kept dividends steady, announcing a fully franked interim $1.98, unchanged from 2015. Some analysts had expected a deterioration in dividend payments as banks, including the Commonwealth, work in a low growth environment and raise rates to help deal with tougher capital requirements.
The Commonwealth’s shares dropped 4.6% to $72.87 yesterday as part of a global rout in the banking sector. But investors cheered the results today, sending the share price 1.89% higher to $74.25. The other three big banks were in the red.
Operating income for the six months to December was up 6% to $12.362 billion, driven by growth in loans. Statutory net profit was $4.618 billion, a 2% rise.
However, expenses increased 6%, including a 1% impact from a lower Australian dollar, to $5.216 billion. The rise in costs reflected higher wages from inflation-related salary increases and increased investment spend.
And loan impairment expenses of $564 million were 28% higher than a year ago. The loan loss ratio was steady at 17 basis points compared to the June half year but up from 14 basis points 12 months ago.
The biggest lump of those expenses, about $305 million, was due to higher home loan arrears and losses in Western Australia and Queensland, driven by deterioration in mining towns and arrears in the personal loans portfolio.
The bank’s return on equity was 140 basis points weaker at 17.2% because of the dilution effect of the massive $5.1 billion capital raising last year to meet stricter capital requirements.
Commonwealth is still Australia’s biggest mortgage lender with its market share of home loans at 25.1%, down from 25.3% in the half year to June. The net interest margin was steady at 2.06%.
The net interest margin — the difference between the cost of funding and what it gets from its loans — was steady at 2.06%.
The results in detail:
All divisions grew except institutional banking and markets which dropped 5% to $904 million.
CEO Ian Narev says the results show the Australian economy continued its steady transition from resource-dependent to a more diversified one.
“Sound monetary policy and a lower Australian dollar are stimulating construction and starting to benefit export-sensitive industries such as tourism, education and agriculture,” he says. “As a result, the economy overall is starting to generate a broader base of jobs.”
However, the transition is still in its early stages.
“So global volatility concerns our customers, and presents challenges here in Australia,” Narev says. “We must be cautious, but also remain focused on the long-term to ensure that Australia remains a great place to live and to invest.”