Commonwealth Bank says chunky expenses will offset gain on sale of Bank of Hangzhou holding

The bank will book lumpy expenses in the latter half of the fiscal year that will be roughly offset by a gain on selling a stake, as it gears up to report an annual $9.3bn profit.

Commonwealth Bank releases its annual earnings result on Wednesday. Picture: AAP

Commonwealth Bank will book $445m in pre-tax lumpy expenses in the latter half of the fiscal year, which will be roughly offset by a gain from selling a stake in China’s Bank of Hangzhou.

The announcement comes as the nation’s biggest home lender prepares to deliver a cash profit of almost $9.3bn for the year ended June 30, according to Bloomberg consensus estimates from Friday. That would be up from a cash profit of $8.65bn in the prior fiscal year.

CBA chief executive Matt Comyn hands down the annual result on Wednesday and investors will be seeking more insight into the earnings outlook, including housing market activity and consumer spending.

Rival National Australia Bank provides a June quarter trading update on Tuesday, ahead of ruling off its financial year on September 30.

On Monday, CBA said it would recognise one-off expense items of $445m, before tax in its second half, with $389m reflecting accelerated amortisation on capitalised software.

“Other provisions of $56m were also recognised relating to changes in the group’s operating model. Software amortisation expense (excluding one-offs) is expected to be broadly flat in fiscal year 2023,” the statement said.

Offsetting that, CBA said the sale of a 10 per cent stake in Bank of Hangzhou to Hangzhou Urban Construction & Investment Group Co and Hangzhou Communications Investment Group Co, would see it book a pre-tax gain of $516m. That will be recognised in the bank’s cash net profit before tax and included within other banking income.

The divestment will boost CBA’s common equity tier one ratio by 35 basis points.

“The remaining 5.6 per cent investment in HZB is now treated as a strategic equity investment, with gains and losses recognised within the statement of comprehensive income, and as a result the group will no longer recognise its share of profits from HZB as an associate within other banking income,” CBA said.

Citigroup analysts expect CBA to report an annual cash profit of almost $9.5bn.

“We are circa 2 per cent ahead of consensus due to lower BDDs (bad and doubtful debts), where we forecast a BDD release of 1 basis point versus a 2 basis point charge in consensus,” the analysts said.

But others, including Goldman Sachs’s Andrew Lyons, expect a decline in CBA’s second-half cash earnings from continuing operations. Mr Lyons tips a 1 per cent fall in cash profit compared to the same period a year earlier.