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CBA Result: What you need to know ?

August 18, 2015 | Team Kalkine
CBA Result: What you need to know ?

Commonwealth Bank of Australia
 
  • The bank announced its results for the financial year ended 30 June 2015 and the statutory NPAT was up by 5% over the previous year at $ 9.06 billion. Cash NPAT was also up by 5% at $ 9.13 billion and the bank announced the launch of a $ 5 billion pro rata renounceable offer for all shareholders. A fully franked final dividend of $ 2.22 per share was announced which is an increase of 2% over the previous year. The total dividend of $ 4.20 per share represented an increase of 5% over the previous year. The dividend payout ratio was 75.1% of cash NPAT which was in line with the previous year and within the target range of 70% to 80%. A strong balance sheet was maintained throughout the year with the high level of capital and all ratios were well in excess of minimum regulatory capital adequacy requirements. The group Is raising capital to meet future adequacy requirements including the average risk weights for Australian residential mortgages announced by APRA. This further bolsters internationally compatible capital ratios and puts the bank in the top quartile of its international peers.
  • Group CEO Ian Narev said that over many years, a simple consistent strategy has been followed and the results show that this has delivered well for customers and shareholders. Retail customers as a was at its all time high as the group returned to its number one position at year end. The focus on productivity was maintained is particularly important because of the increasing levels of regulatory and compliance costs. Technology was and an important factor in the high level of investment and the emphasis will be on the use of technology to improve all channels and simplify customer experience. The impact is clear especially in transaction banking and deposits. The group is committed to enhance the well-being of a wide range of stakeholders including more than 15 million customers and the nearly 800,000 Australian households who directly own through their superannuation and and the millions who own shares through their superannuation funds.
 
  • Group net interest income increased by 5% average interest-bearing assets growing by $ 50 billion to $ 755 billion and retail and business average interest-bearing deposits by $ 32 billion to $ 445 billion. Net interest margin declined by 5 basis points to 2.09% because of the adverse impact of the falling cash rate environment and the increase in liquid assets. Other banking income grew by 12% because of increased commissions, higher trading income because of stronger performance from sales and trading in the Markets business. Funds management income at $ 1.93 billion was flat and, excluding the effect of property transactions and business, the increase was 8% as a result of a 14% increase In Funds under Management. Insurance income dropped by 3% because of an unusually large number of weather related claims in New South Wales and Queensland.
  • Expense growth was higher at 5% because of staff expenses and the impact of the lower AUD. However, the major driver of this growth was the increase in regulatory compliance and remediation costs. The group improved the cost to income ratio by 42 basis points to 42.8% and the productivity initiatives delivered savings of $ 260 million over 12 months. The emphasis on productivity continues to deliver results with benefits from revenues as well as costs. In a stable environment for credit, the ratio of cash loan impairment expenses to gross loans and acceptances was unchanged at 16 basis points.
  • The policy of conservative provisioning was maintained with total loan impairment provisions of $ 3.6 billion and the ratio of provisions to credit risk weighted assets is 1.14%. Collective provisions included a management overlay of $ 755 million which included an increase economic overlay. The group continues to meet a significant part of its lending growth from customer deposits which now accounts for 63% of total funding and, during the year, the group issued long-term wholesale debt in several currencies worth $ 31 billion. Investment in long-term growth continues with $ 1.2 billion invested in projects including risk and compliance, productivity and technology. Organic capital growth resulted in a Basel III CET1 ratio of 12.7% on an internationally comparable basis and 9.1% on an APRA basis. The group continues to be among the limited number of banks classified in the AA - ratings category.
  • In July 2015, APRAannounced an increase in the capital requirements under the Internal Rating Based Approach for Australian residential mortgages and risk weights have been changed from approximately 16% to 25%. The impact on the bank would be a decrease of approximately 95 basis points ($ 4 billion) in CET1. The change is effective from 1 July 2016 and any capital raised as a result of this change would further support the internationally comparable ratios of the bank. The entitlement offer of ordinary shares to all shareholders is fully underwritten to raise $ 5 billion. This would be more than adequate to satisfy the higher risk weight requirements. It will strengthen the position of the bank in the top quartile globally and will not change the dividend policy. In FY 2016, the payout is expected to be around 70% for the interim dividend and between 70% and 80% for the full year dividend.
  • About the future outlook. CEO Narev said that the Australian economy has some good foundations and the monetary policy has stimulated residential construction which should reduce the dependence on mining investment. In the short term, risks remain because of the volatility in some parts of the global economy and an important factor would be whether the lower dollar spurs investment and results in the creation of jobs and the stimulation of consumer demand. In the longer term, he takes a positive view a positive view of the Australian economy but the policy environment must continue to enable the country to take advantage of its strengths.

 
 
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