Commonwealth Bank first quarter cash net profit falls 8pc

Commonwealth Bank’s first quarter cash profit fell to $2.3bn, as it warned of a tough operating climate in 2020.

A Commonwealth Bank branch in Melbourne. Picture: AFP

Commonwealth Bank of Australia has reported a mixed first-quarter cash earnings result, which fell to $2.3bn compared with the same period last year, but printed higher compared with the average of the two quarters in its second half.

The unaudited cash profit for the three months ended September 30 rose 5 per cent, excluding notable items, compared to the average of the two quarters in its second half 2019, the bank said in an ASX statement on Tuesday. The result was buoyed by growth in deposits and home and business lending.

However the unaudited cash result was down 8 per cent on the $2.5bn reported in the corresponding period last year.

Commonwealth Bank shares were 0.6 per cent higher at $80.53 in early trade, and finished Tuesday’s session almost 1 per cent higher at $80.83.

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The bank’s statement on Tuesday warned of a tough operating climate in 2020.

“The bank remains well placed in a challenging operating environment, characterised by global macro-economic uncertainty and historically low interest rates,” CBA chief executive Matt Comyn said.

“Our strong capital position and balance sheet settings mean we are well placed to meet the needs of our customers, illustrated by good volume growth in our core markets of home lending, business lending and household deposits.”

Cash profit excludes volatility from items including hedging and losses or gains on acquisitions or divestments.

Unaudited statutory profit for the quarter printed at $3.8bn, including a $1.5bn gain on the sale of CBA’s global asset management division.

Last year’s statutory first-quarter profit was $2.45bn, but did not include large gains from asset sales.

Operating income rose 3 per cent, while operating expenses edged up 2 per cent, excluding notable items, due to higher staff costs and technology amortisation. The loan impairment expenses came in at $299m in the quarter.

After the latest earnings results, the big four banks posted a combined annual cash profit of $26.9bn for 2019, down 7.8 per cent on the prior year, as cash earnings fell to 2012 levels.

ANZ, National Australia Bank and Westpac have a September 30 year end, while CBA’s balance date is June 30.

CBA’s common equity tier one ratio was 10.6 per cent as at September 30, just above the banking regulator’s 10.5 per cent “unquestionably strong” threshold, which comes into effect January 1. Previously flagged divestments, such as the sale of the bank’s life insurance operations, are expected to add 60 basis points to CBA’s capital buffers.

Excluding a benefit from wholesale funding markets, CBA’s net interest margin as at September 30 printed about four basis points lower at 2.06 per cent when compared to June 30. The net interest margin reflects what the banks earned on loans minus funding costs.

The September 30 CBA net interest margin takes into account two of the Reserve Bank’s 25 basis point cuts to official rates this year, but not the latest reduction in October.

CBA’s customer compensation and related costs printed steady in the quarter at $2.2bn in total program spend and provisions. The bank said $1.2bn related to customer refunds, of which about $600m has been paid to banking and wealth management customers to-date, excluding financial planning groups operating under its licence.

Like its rivals, CBA hasn’t ruled out further remediation costs stemming from a string of scandals and misdeeds at the bank, which were fleshed out at the Hayne royal commission.