CBA posts profit slide due to ongoing risks associated with pandemic


Commonwealth Bank says it is committed to Australia’s economic recovery despite super low interest rates battering the institution’s bottom line.

Releasing its interim results for the first half of the 2021 financial year, CBA posted a $3.89bn cash profit, a 10.8 per cent decline on the same period last year.

The bank noted increased provisions because of COVID-19 and significantly lower interest rate settings had impacted the nation’s largest mortgage lender.

Loan impairment expense provisions increased $233m over the first half of financial year 2021, while the amount cast aside for loan losses rose from $6.4bn to $6.8bn as a result of ongoing virus risks.

CBA chief executive Matt Comyn said the outlook remained “positive”; however, further health and economic risks associated with the pandemic could impact operating conditions.

“We are prepared for a range of scenarios and have taken a careful approach to provisioning,” Mr Comyn said.

“We also continue to monitor our lending portfolios closely for any signs of stress. The low interest rate environment will continue to put pressure on our revenue, which is why we remain focused on performance, operational execution and capital allocation.”

Mr Comyn during a press conference said the tapering of JobKeeper at the end of March would lead to a rise in economic risks and bump up the prospect of future credit losses.

“There is a range of different variables we consider,” he said. “JobKeeper is certainly an input into that.”

The bank also noted its new zero interest Neo card made up almost a third of new credit card approvals over the December quarter.

Operating income for the period was down 0.5 per cent to $11.96bn partly because of a pressured net interest margin during the economic downturn.

Despite the slump, CBA shareholders received a 53 per cent jump in their interim dividend to $1.50 per share fully franked.

Dividends during 2020 were limited due to guidance set by the Australian Prudential Regulation Authority, which said banks must retain at least 50 per cent of statutory profit for financial resilience during the virus crisis.

The low interest rate environment has also impacted the bank’s net interest margin by 10 basis points compared with the first half of the last financial year. It now sits at 2.01 per cent.

The bank said net interest income was broadly flat over the period despite increases in both housing and business lending.

CBA said further headwinds on the net interest margin would occur during the remainder of the year.

The bank’s common equity tier 1 (CET1) ratio improved 100 basis points on the second half of the last financial year to 12.6 per cent due to “strong organic capital generation” and benefits from divestments, including the sale of its insurance business.

CET1 is a financial metric to show how well capitalised a bank is. The ratio has to be above APRA’s “unquestionably strong” benchmark of 10.5 per cent.

The bank also noted deposit volumes continued to grow, while operating expenses over the period rose 2.3 per cent.



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