Five things we have learned from The Commonwealth Bank’s profit
Australia’s largest bank has turned a multibillion-dollar profit during the coronavirus pandemic, and its latest results show what this means for borrowers, savers and shareholders.
Money
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The Commonwealth Bank today announced a $7.3 billion annual cash profit, down 11.3 per cent, and slashed its final dividend.
Australia’s biggest bank’s statutory net profit was actually higher, up 12 per cent to $9.6 billion, but that reflected some one-off gains from the sale of life insurance and wealth businesses.
Buried in its hundreds of pages of notes, numbers and charts are a few lessons to help borrowers and investors better understand where CBA and our other big banks sit right now.
1. BANKS ARE STILL MONEY-MAKING MACHINES
Even in the middle of a pandemic, CBA’s cash taps were running. The bulk of its cash profit came in the six months to December 31 – $4.5 billion – but the bank still booked a $2.8 billion profit between January 1 and June 30.
Economists say without a strong banking system Australians would be in much worse financial shape during COVID-19. Without banks’ financial support packages and loan deferral repayment holidays, many more people would have hit the wall.
2. STRUGGLING BORROWERS HAVE A SAFETY NET
CommBank said its home lending deferrals had dropped from 154,000 at the peak of the COVID crisis to 135,000 by the end of July. Personal loan deferrals had dropped from 21,000 to just 1000 and business loan deferrals fell from 86,000 at the peak to 59,000 at July 31.
It shows many borrowers are still struggling, but chief executive Matt Comyn said the bank’s financial strength enabled it to “continue supporting customers and the economy”.
Banks’ loan deferrals were initially due to end in September but have been extended into 2021, and lenders are unlikely to force an avalanche of mortgagee sales that would destroy both the economy and their own finances.
3. MORE LOANS WILL COLLAPSE
COVID’s carnage means many businesses and households will not survive financially, and CBA’s results reflect this.
It has set aside a $2.5 billion impairment expense to cover bad loans, including $1.5 billion for COVID-19 – a key reason why its cash profit was down so much.
4. HOUSEHOLDS ARE HOARDING CASH
Uncertainty caused by the virus has prompted Australians to build bigger cash buffers for emergencies.
Commonwealth Bank customers added an extra $15 billion to their deposit accounts between February and June, from $264 billion to $279 billion.
This is a key reason why we have recently seen deposit interest rates dropping – banks are no longer competing for our cash because we’re handing it to them freely.
5. DIVIDENDS HAVEN’T DIED
CommBank slashed its final dividend to 98c, down from $2.31 last year. But its dividend cut was in line with guidance from regulators for banks to hold onto more cash and pay less to shareholders.
ANZ and Westpac had deferred their latest dividends, while NAB slashed its payment, but CBA’s announcement suggests that payouts to bank shareholders this year won’t dry up completely.