Commonwealth Bank of Australia updates
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Commonwealth Bank of Australia unveiled a record A$6bn (US$4.4bn) share buyback and increased its dividend following a surge in profits linked to the country’s strong economic recovery from the coronavirus pandemic.
The bumper investor payday from the nation’s biggest lender by assets followed smaller share buybacks recently announced by rivals ANZ Bank and National Australia Bank. Australian lenders have benefited from an economic rebound thanks to government stimulus as well as lower loans losses than expected from Covid-19 and asset sales.
Australia’s big four banks, which also include Westpac, have amassed more than A$30bn in excess capital. Analysts expect the lenders to return most of that windfall to investors over the next few years.
CBA said on Wednesday that cash profits jumped 20 per cent to A$8.8bn in the year to June, slightly above analysts’ forecasts.
But the bank cautioned that lockdowns to stem recent Covid outbreaks would hit Australia’s economy in the coming months while low interest rates would put pressure on earnings. Still, CBA said it was optimistic that growth would rebound in late 2021 when Covid vaccination rates were higher and lockdowns had been lifted.
“This result demonstrates the resilience of the Australian economy during Covid-19,” Matt Comyn, CBA chief executive, told the Financial Times.
“[The] recovery was faster and sharper than we think everyone would have reasonably anticipated. As challenging as the current situation is now, we’re certainly optimistic that economic recovery will recommence and continue.”
CBA declared a final dividend of A$2 per share for the six months to June, meaning it will pay A$3.5bn to shareholders.
CBA shares rose almost 2 per cent to a record in Sydney trading following the earnings release.
Australian authorities have imposed stay-at-home orders on more than 14m people in recent weeks in response to outbreaks of the highly infectious Delta strain, a policy that is expected to increase unemployment.
CBA said it had given repayment deferrals to 6,800 home loan borrowers and 240 business customers between mid-June and the end of July, following a virus outbreak in Sydney.
Comyn said loan deferral rates were running at 300-400 per day, significantly lower than the 10,000 per day peak experienced during the first wave of the pandemic last year.
“People are in a stronger financial position given the stimulus and some businesses have had very strong operating conditions. It is really dependent on the extended duration or nature of the lockdowns,” Comyn said.
Brendan Sproules, an analyst at Citi, expressed caution about the “narrowness” of CBA’s revenue growth, which was confined to its mortgage book.
He noted that CBA’s business banking revenues had declined despite strong volume growth and there was a continued contraction in investment banking and trading revenues.
S&P Global Ratings pointed out that CBA’s common tier one equity ratio, a measure of financial strength, would fall to 12.1 per cent because of the payouts. That remains well above a regulatory benchmark of 10.5 per cent for “unquestionably strong” capital levels, said the rating agency.
Nathan Zaia, an analyst at research group Morningstar, said the payout was no surprise given that CBA had A$11.5bn in excess capital and expected to continue generating large amounts of cash.
“It really didn’t make sense to hold so much capital,” he said.