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Commonwealth Bank’s September quarter profit falls 16%

CBA has posted a cash profit of $1.8bn for the first quarter as growth in home lending, business lending and deposits helped to offset margin pressures.

CBA’s household deposits grew by almost $16bn in the three months. Picture: Bianca De Marchi
CBA’s household deposits grew by almost $16bn in the three months. Picture: Bianca De Marchi

CBA has posted a 16 per cent drop in cash profit to $1.8bn for the first quarter as margin pressures and higher provisioning weighed on the lender’s performance even as it recorded growth in home lending, business lending and deposits.

Household deposits grew by almost $16bn in the three months period, with the bank seeing “significant inflows” following the second round of government stimulus packages.

Home loan growth remained above system on higher application volumes and quicker turnaround times. Domestic business lending also grew over the period.

But CBA, the nation’s biggest bank, increased its total credit provisions for potential lending losses to $6.7bn over the quarter, up from $6.4bn at June 30. The higher provisioning represents a coverage ratio of 1.81 per cent to total credit risk weighted assets, up from the 1.7 per cent at the end of the last financial year.

The bank said it is monitoring its lending portfolios closely, and making adjustments to provisions based on the latest economic forecasts “as well as forward-looking adjustments for customer and industry stress factors related to COVID-19”.

Its unaudited net profit over the period came in at $1.9bn.

Providing an update on its customers on loan repayment holidays, CBA chief executive Matt Comyn said the bank continued to contact borrowers to discuss their options. He said he was “encouraged by the number of customers who were able to return to making repayments on their loans”.

“Our strong balance sheet, focus on operational excellence and the dedication and commitment of our people ensures we remain well placed to support our customers and the wider community through the ongoing challenges of COVID-19,” Mr Comyn said.

CBA’s net interest margin declined from the second half as it felt the impact of lower interest rates, as well as unfavourable lending margins and higher liquid assets. This was partly offset by growth in at-call deposits and lower wholesale funding costs, it said.

Non-interest income increased 1 per cent, primarily driven by higher global markets trading income and higher insurance income from lower claims. This was partly offset by lower retail banking fees, CBA said.

Operating expenses were 4 per cent lower over the period as remediation provisions slimmed. Excluding customer remediation, operating expenses were 2 per cent higher, which CBA said reflected increased investment spend and higher staff costs as it beefed up its staffing levels and employees took less annual leave.

Alongside the trading update, CBA said there had been a 59 per cent reduction in total loan deferrals in October, representing a monthly net reduction in deferred balances of around $21bn.

Approximately 52,000 loans remained in deferral as at October 31, down 75 per cent from the total as at June 30.

CBA earlier this month said it would freeze forced sales for customers who had defaulted on their loan repayments due to financial pressures stemming from the coronavirus pandemic and subsequent shutdowns.

The bank has initiated a moratorium on forced sales until September 2021 for customers which have accessed the COVID-19 loan deferral schemes and are still unable to resume normal payments.

Read related topics:Commonwealth Bank Of Australia

Original URL: https://www.theaustralian.com.au/business/financial-services/commonwealth-banks-september-quarter-profit-falls-16pct/news-story/ce42b583fa889061588bb69bd8eb15ca