Commonwealth Bank of Australia increases dividend but remains cautious about outlook
The Commonwealth Bank of Australia has reiterated its long-term dividend forecast and increased the payout in its first fiscal semester, while being cautious about the continued fallout from the COVID-19 pandemic.
CBA announced a dividend of AU $ 1.50 per share for its first fiscal half-year, a 53% increase from the 98 cents per share paid in the previous half-year, following the publication of its results for the six-month period ended. December 31, 2020 as planned. The payout, however, was 25% lower than AU $ 2 per share in the same period last year.
Dividends are an important source of income for Australian retail shareholders, especially retirees. The move by Australia’s largest bank in terms of assets could herald an acceleration in payments from rivals Australia and New Zealand Banking Group Ltd., National Australia Bank Ltd. and Westpac Banking Corp.
All Australian banks cut their payments last year after the The Australian Prudential Regulation Authority in April 2020 asked them to consider postponing dividend rulings. APRA lifted its restrictions in July 2020 and said in December 2020 that banks and insurers should continue to moderate dividend payout ratios.
The payout is “a little below our target distribution range, reflecting a period of economic uncertainty and is in line with the latest APRA guidelines released in December,” CFO Alan Docherty said on the earnings call. from the ABC on February 10. The bank’s long-term dividend payout forecast remains between 70% and 80%, he said. The bank’s interim dividend over the six-month period represents a cash payout ratio of 67%.
“It is positive that the CBA has clarified the dividends and although there is still uncertainty on the horizon, the CBA is fairly well capitalized at the moment, ”said Omkar Joshi, director and portfolio manager at Opal Capital Management, to S&P Market Intelligence in an email.
The bank’s Tier 1 common stock ratio according to Australian prudential regulator criteria stood at 12.6%, down from 11.6% in the previous half-year and 11.7% a year ago. The bank’s CET1 ratio on a like-for-like basis is 18.7%.
After-tax net cash income fell 11% year-over-year to A $ 3.89 billion in the first half of the year, impacted by the low interest rate environment and the COVID pandemic. 19. Net interest income increased from A $ 9.35 billion to A $ 9.37 billion, while total banking income increased from A $ 11.79 billion to A $ 11.79 billion, the Australian lender reported.
CEO Matt Comyn said the bank had performed “well,” aided by real estate credit with growth above the system at 1.5% and business credit up 7.4%. However, the CEO has been cautious as several factors could still hurt the bank’s performance even as Australia’s economic outlook has turned positive.
“We are prepared for a series of scenarios and have taken a conservative approach to provisioning. We also continue to closely monitor our loan portfolios for any signs of strain. The low interest rate environment will continue to put pressure on our revenues, which is why we remain focused on performance, operational execution and capital allocation, ”Comyn said in a statement.
Lisa Barrett, analyst at S&P Global Ratings, said CBA’s results “were strong and broadly in line” with expectations. “WWe believe that CBA’s strong retail franchise has continued to support the growth of its above-system loans and deposits. While net interest margins declined further due to the impact of the low interest rate environment, lower wholesale funding costs partially offset this, ”Barrett said in a note on 10 February.
Comyn noted that the Reserve Bank of Australia’s latest forecast points to a stronger than expected recovery in the local economy. The labor market is improving with an unemployment rate of 6.6% and consumer confidence is increasing. The housing market has also held up, having fallen only 2% in the year 2020, he said.
“OOverall, our baseline scenario is very similar to the Reserve Bank’s latest forecast and its monetary policy statement last week, ”the CEO said. However, he said the bank wanted to make sure it was “prepared for a number of different risks. scenario and ensure that the bank and our balance sheet are well prepared for this range of economic scenarios. “
The bank’s net interest margin stood at 2.01% in its first fiscal semester, down 3 basis points from the previous six months and 10 basis points from the first half last year, driven by lower interest rates and increased liquidity.
The bank said its total impairment provisions were further increased in the first half of the year to A $ 6.8 billion, from A $ 6.4 billion in June 2020 and A $ 5.0 billion in December 2019. , due to forecast adjustments to collective provisions for emerging risks.
“We are very well positioned for the future. Our current level of provisions is now $ 1.8 billion above the level of provisions that we estimate to be required under our core economic scenario. And certainly, macroeconomic trends continue to move in the right direction. direction, ”said CFO Docherty.