CBA's half year profit falls, costs of bank inquiries hit bottom line

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The Commonwealth posted a weaker half year cash profit of $4.735 billion, down 1.9%, as the bank made provisions for the cost of a string of scandals.

Australia’s biggest bank has also estimated a civil penalty of $375 million in the money laundering scandal case brought before the Federal Court by AUSTRAC, Australia’s financial intelligence and regulatory agency.

And it plans $200 million in expenses relating to currently known regulatory, compliance and remediation program costs, including the Financial Services Royal Commission.

The provisions meant the bank missed expectations of about $5.2 billion in cash profit.

“During this period, we have focused a great deal of effort on fixing our mistakes, and becoming a better bank,” says CEO Ian Narev.

Underlying operating income for the six months to December increased 4.9% top $13.03 billion.

The net interest margin was up 6 basis points to 2.16% and loan impairment expenses fell 0.5% to $596 million. But cash earnings per share fell 3.2% to $2.72.

The bank increased its dividend payout to $2 a share, up 1 cent.

“Work hard to do better”

“Combined with disciplined margin management, on-going productivity and stable credit quality, this has again produced industry-leading underlying performance,” says Narev, who is due to step down as CEO in April. He is being replaced by Matt Comyn.

“We have taken a significant provision for regulatory and compliance costs, consistent with accounting standards.

“We have also taken a $375 million expense provision which we believe to be a reliable estimate of the civil penalty a Court may impose in the AUSTRAC proceedings.

“We recognise, and regret, that these costs arise from our failure to meet some standards that we should have. We will continue to work hard to do better.

“At the same time, we have been able to increase our dividend, even whilst providing for these costs, and strengthening all aspects of our balance sheet so that we can support customers and deliver returns for our shareholders into the future.”

The banks says it believes $375 million is a reliable estimate of the level of penalty that a court may impose. “This takes into account currently available information, including legal advice received by the Group in relation to AUSTRAC’s claims,” it says in a note to its accounts.

CBA’s money laundering scandal involves its smart ATMs and deposits by criminal syndicates in the hundreds of millions of dollars.

Australia’s major banks face 15 different major inquiries, including a royal commission, following a series of scandals involving giving poor financial advice to customers.

“A $200 million expense provision was taken for expected costs relating to currently known regulatory, compliance and remediation program costs, including the Financial Services Royal Commission,” says CBA.

Outlook

Narev says global growth trends are positive overall but singl;ed out Australia’s low wage growth, currently less than 2% a year, as an issue.

“Demand for Australia’s raw materials, and other goods and services, should remain strong. And employment-intensive sectors such as infrastructure, tourism and education should continue to grow and underpin GDP and employment growth,” he says.

“However, market volatility remains a risk given ongoing global uncertainty as to the pace and extent of rate rises. Market movements over recent days highlight this risk. Volatility can undermine the confidence that is critical to continuing growth.

“Low wage growth also impacts confidence. Economic growth improves families’ feelings of wellbeing when household income grows. Despite the positive trends in job creation, trends in wage growth and underemployment may cause households to remain cautious, which in turn weighs on consumption and business investment.

“CBA will remain positive about Australia’s prospects, while being wary of these risks. And we will continue to focus on the long term so we can serve and innovate for our customers, provide stable returns for our shareholders, support our community, and remain strong into the future.”

Source: CBA

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