Australian’s are rightly proud of the strength of its banking sector – indeed with a little help from the Government’s guarantee its resilience was one of the reasons Australia sailed through the GFC with significantly less difficulty than most other nations.
But something that might interest the Abbott Government’s Financial System Inquiry is news today in the AFR that the CBA is expected to report a bumper $4 billion profit for the first 6 months of its current financial year this week.
The CBA reports on Wednesday and “analysts are tipping a profit of around $4.1 billion, up from $3.8 billion in the first half of 2013.”
The CBA has a different financial year reporting timeframe (historical precedent) to the other majors, who won’t report half yearly earnings until May. But last financial year “the big four posted combined profits of $27 billion in 2013 and experts believe the strong run of results will carry over into 2014.”
At a time when Treasurer Joe Hockey is actively discussing the end to the age of entitlements, that is a lot of cash being made by institutions which, according to the Credit Rating Agencies, enjoy a quasi-government guarantee and consequently a credit rating upgrade given their “too big to fail” status as Domestically Systemically Important Banks (dSIB).
Australia’s bank regulator APRA has been paying attention, as the AFR notes:
With profits on the rise, investors are eyeing another year of strong dividends by the banks. However, analysts warn anyone with expectations of exuberant payouts will be disappointed as the banks are preserving capital to meet new regulations.
New rules announced in December will require the big four to hold an additional 1 per cent of capital in reserve as a safeguard against losses, though the requirements do not take effect until 2016.
You can read more here