Commonwealth Bank’s cash profit slides as loan deferrals rise

The Commonwealth Bank’s cash profits have taken a hit as the impact of the coronavirus downturn ripples through the industry.

The Commonwealth Bank has revealed the extent of the damage caused by the coronavirus pandemic, with it cash profits sinking by 11.3 per cent.

COVID-19 hardship measures have caused a blowout in deferred loan repayments of more than a billion dollars, impacting its cash position for the year ending June 30.

CBA posted a cash net profit after tax of $7.3 billion, an 11.3 per cent decline compared to the previous corresponding period, largely driven by a higher loan impairment expenses due to the pandemic.

The country’s largest retail bank posted a statutory net profit of $9.6 billion for the 12 months ending June 30, a 12.4 per cent increase compared to the same period in 2019.

The Commonwealth Bank has revealed the extent of the damage caused by the coronavirus pandemic, with it cash profits sinking by 11.3 per cent. Picture: NCA NewsWire/Tertius Pickard

CBA chief executive Matt Comyn said the bank’s statutory profit rise came off the back of various divestments, including the sale of 55 per cent of its wealth business Colonial First State to global wealth group KKR.

“Overall, we’re lucky that we came into this period in a very strong position so the bank’s been able to operate very effectively during that time, but of course we have been impacted,” Mr Comyn said.

“For the Commonwealth Bank, we feel very well positioned for a range of different economic scenarios.”

The bank warned dampened credit growth and low interest rates would place pressure on its revenue income for the current financial year.

CBA CEO Matt Comyn says the bank is well positioned for a range of different economic scenarios. Photo: NCA/ NewsWire Gaye Gerard

Australia’s banking industry has come under pressure since the onset of the coronavirus pandemic, with millions of customers hitting pause on loan repayments through financial hardship measures.

The bank’s loan impairment expense provisions are $2.5 billion, a $1.3 billion increase compared to 2019.

At July 31, 135,000 home loan accounts had been deferred which represents 8 per cent of the bank’s total accounts. Approximately 59,000 business loan accounts remained suspended.

CBA has also issued a final dividend for the year of 98 cents per share, bringing the total year dividend to $2.98 per share fully franked.

Total dividends paid out by the bank for the 2020 financial year will be $5.3 billion.

CBA has also issued a final dividend for the year of 98 cents per share, bringing the total year dividend to $2.98 per share fully franked. Picture: NCA NewsWire/Tertius Pickard

The low interest rate environment induced by the Reserve Bank of Australia’s emergency rate cuts in June has impacted CBA’s net interest margin, which fell two basis points to 2.07 per cent. Both CBA’s deposit and loan books have experienced interest slashings.

At the year ending June 30, CBA remained well capitalised with its common equity tier one ration standing at 11.6 per cent, which is above the Australian Prudential Regulation Authorities “unquestionably strong” benchmark of 10.5 per cent.

“The next few months will be critical and some sectors will take longer to recover than others, however, we remain positive about Australia’s long-term prospects,” Mr Comyn said. “We will also continue to work with government, regulators and our industry peers to support initiatives that stimulate economic activity and jobs.”

Originally published as Commonwealth Bank’s cash profit slides as loan deferrals rise