Commonwealth Bank’s first-half cash profit fell 2.1 per cent to $4.676 billion, weighed down by Australia’s slowing property markets and royal commission-related remediation costs.
Australia’s biggest bank said on Wednesday that cash profit for the six months to December 31 fell from $4.871 billion in the prior corresponding period after revenue fell 1.9 per cent to $12.41 billion.
Volume growth was offset by a lower net interest margin due to the increased cost of funding loans, competition and customers switching from higher-margin investor and interest-only mortgages to cheaper owner-occupier and principal and interest loans.
And two days after the Hayne royal commission report was made public, CBA said that risk, compliance and remediation costs jumped to $221 million from $100 million a year earlier.
Nonetheless, chief executive Matt Comyn said the bank would emerge stronger as it works with regulators and government on the implementation of all 76 of Commissioner Kenneth Hayne’s recommendations.
“Despite how difficult the process has been, I am very confident that we are going to be a much better bank as a result for our customers and it is really incumbent on us to be able to demonstrate to them that we’ve really changed,” Mr Comyn said.
While risk, compliance and remediation costs rose, total expenses dropped 3.1 per cent due to the AUSTRAC money-laundering penalty and other costs occurring in the prior corresponding period.
Mr Comyn, who became CEO after the AUSTRAC scandal led to Ian Narev’s retirement, said CBA would continue to address its failings.
“There is much work ahead,” Mr Comyn said.
First-half profit, while lower than analysts had forecast, was up 1.7 per cent once discontinued operations including the local insurance businesses it is selling to AIA are stripped out.
CBA could hand billions of dollars generated from the asset sales to shareholders, but Mr Comyn said the board won’t make plans until after Chinese regulators give one of its major divestments the green light.
UBS analyst Jon Mott said the result was disappointing after a solid first quarter in which revenue had risen slightly.
“CBA will need to go even harder on costs if the revenue environment continues to slow,” Mr Mott wrote.
Customers have been switching as banks tighten lending standards and raise the cost of riskier loans in response to regulatory intervention and the harsh light of the royal commission.
“The housing market transition is a rational outcome of the lending policy changes introduced over a number of years, especially following an extended period of outpaced growth in some markets,” Mr Comyn said.
At 1535 AEDT, CBA shares, which surged 4.69 per cent on Tuesday following the release of the Hayne royal commission report, were 0.83 per cent lower at $72.99.
CBA’S FIRST HALF
* Cash profit down 2.1pct to $4.676b
* Net profit down 6.3pct to $4.599b
* Total income down 1.9pct to $12.411b
* Interim dividend flat at $2.00, fully franked