Commonwealth Bank reports a dip in quarterly earnings as home loan arrears edge higher

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  • CBA said home loan arrears edged higher in the March quarter.
  • Underlying operating income dipped by 4%.
  • The bank said total bad debts remain low and its capital position is strong.

Commonwealth Bank has reported an unaudited cash profit of $2.35 billion for the three months to March 31, in a quarterly trading update released this morning.

While stating that “the credit quality of the Group’s lending portfolios remained sound”, CBA said there was an increase in loan customers who are starting to feel the pinch.

“There has been an uptick in home loan arrears, influenced by a small number of customers experiencing difficulties with rising essential costs and limited income growth,” CBA said.

The number of home loans more than 90 days in arrears edged higher to 0.65% — up from 0.47% in December 2015.

The bank also said that consumer arrears — personal loans and credit cards — were unseasonably high in the quarter.

Troublesome and impaired assets also rose to $6.6 billion at March 31, up from $6 billion in the December quarter.

The bank said impaired assets remained largely stable, with the rise in troublesome exposures driven by a small number of customers facing financial difficulties.

“Prudent levels of credit provisioning were maintained, with total provisions at approximately $3.8 billion,” CBA said.

Overall, bad debts remain low with $261 million of loan impairment expenses reported in the quarter — just 0.14% of gross loans and acceptances.

Underlying operating income decreased by 4% in the first three months of the year, which the bank attributed to two less trading days in the quarter.

“Excluding the impact of two fewer days in the quarter (approximately $100 million), net interest income was broadly flat,” CBA said.

The bank said its capital position remains strong, with a CET1 ratio of 10.1% at March 2018.

That has been reduced to 9.8% on a pro-forma basis in the wake of a review of CBA’s operations by banking regulator APRA.

The bank will be forced to hold an additional $1 billion of capital until it has undertaken remedial action to improve its operational processes.

Last June, APRA said it would require all of Australia’s major banks to have a CET1 ratio of 10.5% by 2020, in order to meet the definition of an “unquestionably strong” capital base.

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