Commonwealth Bank investors expect dividend payout despite COVID-19 hit

Investors will be focused on CBA’s dividend payout and the bank’s loan loss provisions when profit results are handed down this week.

CBA chief executive Matt Comyn. Picture: Britta Campion

Investors will be focused on CBA’s dividend payout and the bank’s loan loss provisions when CEO Matt Comyn this week hands down one of the most closely watched profit results of the season.

The nation’s biggest lender is on Wednesday expected to post cash earnings of $7.6bn for the 12 months through to June 30, according to consensus analyst forecasts.

This would be a 10 per cent decline on the prior corresponding period.

Improved deposit spreads and lower funding costs in the final quarter should prove supportive for the bank’s second-half net interest margin, analysts say, with net interest margin for the year expected to come in at 2.09 per cent, down slightly on 2019.

While CBA has already put aside $1.5bn for bad debts through the COVID-19 crisis, investors will be watching for an update on loan loss provisions as well as any commentary on the expected impact of Melbourne’s six-week stage four shutdown.

UBS is tipping credit impairment charges for the second half to rise to $1.9bn given the impact of COVID-related provisions.

This assumes a $400m underlying provision charge and includes the $1.5bn COVID-related provision announced at its third quarter trading update.

“We have been discussing the likelihood of a W-shaped recovery as we are currently in an information void during the loan deferral period,” UBS banking analyst Jonathan Mott warned.

“CBA could experience an uptick in impairment charges in the 2021 financial year as government stimulus and loan deferrals come to an end.”

Alongside commentary surrounding the impact of Melbourne’s shutdown, an update on check-ins with customers on mortgage repayment holidays will be among the items most closely watched.

At its third quarter trading update, CBA revealed that 144,000 home loan deferrals, representing 10 per cent of total balances, and 70,700 business deferrals, or 17 per cent of total balances, had been requested due to COVID-19.

Despite the pressure facing the banking sector, expectations are high for CBA to pay out some kind of a dividend, following the prudential regulator’s guidance stating that bank payout ratios should not exceed 50 per cent of earnings.

UBS expects the bank to pay a 95c dividend per share, representing the 50 per cent payout ratio.

“However, we note this is at the higher end of consensus (at 76c per share),” Mr Mott said.

“We believe CBA is further supported by a strong capital position from both completed and announced asset sales. We assume the CET1 of 10.7 per cent as at March 31 increases to 11.2 per cent at June 30.”

Goldman Sachs is even more optimistic, forecasting a 100c per share dividend, but prepared clients for a potentially lower payout.

“We expect the market to focus heavily on CBA’s dividend and any capital management commentary at the upcoming result and concede there is a wide range of potential outcomes with respect to both the size of the dividend and level of the dividend reinvestment plan,” the broker said.

Brendan Sproules at Citi, meanwhile, is tipping a payout of just 50c per share, based on his expectations for it to reflect 50 per cent of the bank’s full-year statutory earnings.

“We expect APRA’s dividend guidance to be applied to 50 per cent of fiscal 2020 statutory earnings, driving our 50c per share forecast dividend in the second half,” he told clients.

CBA last month announced it had increased its remediation bill for paying back customers who received dodgy financial advice by $300m. The increased provisions would be recognised in operating expenses for fiscal 2020, it said.

In total, it has now set aside $834m for remediation, including $698m in refunds and $136m in program costs.

“While these additional provisions are estimates, that may change. CBA believes it has adequately provided for these issues. CBA will continue to monitor the adequacy of these provisions,” the bank said.

Commonwealth Bank is the only major bank to be reporting its annual earnings this season. Westpac, ANZ and NAB will report their full-year results later in the year.