Commonwealth Bank posts $9.45bn annual profit

Commonwealth Bank has lifted full-year cash profit 3pc but revealed stiff margin pressure amid a rise in souring debts.

Commonwealth Bank CEO Ian Narev. Pic: Bob Barker.

Commonwealth Bank of Australia has posted a 3 per cent lift in full-year cash profit but has revealed stiff margin pressure amid a hefty increase in souring debts.

CBA (CBA) today unveiled a record cash profit of $9.45 billion for the year through to June, a 3 per cent increase year-on-year and just a fraction below analyst expectations.

The solid rise in profit came despite a 2 per cent slide in revenue, which dipped to $44.38bn.

However, the results revealed CBA was facing stiff pressures to its margin, with its net interest margin — the key measure of profitability — falling 2 basis points to 2.07 per cent over the year. Operating expenses rose 4 per cent while bad loans surged 27 per cent, which the bank said was mainly due to “higher provisioning for resource, commodity and dairy exposures”.

But CBA held its generous dividend final dividend at $2.22, bringing the year’s total payout to $4.20 a share. While the dividend is flat year-on-year, the move may calm concerns that the bank’s level of distribution is unsustainable, after ANZ earlier this year re-based its own dividend.

CBA’s return on equity fell to 16.5 per cent from 18.2 per cent a year ago.

Customer deposits, which have come under focus following the major banks’ refusal to pass on the latest Reserve Bank of Australia rate cut in full, grew 8 per cent over the year, adding an extra $40bn to the lender’s $518bn pool of deposits. CBA said this represents 66 per cent of its total funding.

Following the political pressure that was piled on the industry following the RBA rate cut, banks have blamed the withholding of some of the rate cut on the need to increase deposit rates for savers, which would help fund their lending businesses.

Commenting on the results, chief executive Ian Narev said ongoing economic strength in Australia would require a lift in the low rates of nominal GDP growth.

“Income growth inside and outside Australia remains weak, so people are not feeling better off,” he said.

“When combined with ongoing global economic and political uncertainty this makes households and businesses cautious, and hesitant to respond to monetary stimulus.”

Last week, after CBA and its rivals hiked 12 to 36-month term deposit rates while withholding the full rate cut for mortgage rates, the RBA shot down suggestions it would have a major impact on margins by claiming these products made up less than 2 per cent of the banks’ funding.

CBA said its net stable funding ratio -- which is reliant on longer term bonds, such as term deposits -- was also above 100 per cent and its common equity Tier 1 capital ratio had risen to 10.6 per cent, up from 9.1 per cent a year ago.

“This now places us above any ‘unquestionably strong’ benchmark for CET1 capital,” Mr Narev said. “With clarity on a number of global regulatory reforms expected by the end of this calendar year, we are confident that we will maintain our position of strength across all required metrics.”

“Notwithstanding the increased capital levels, global volatility and regulation have meant that funding costs have moved higher in the second half of the year.”