Commonwealth Bank of Australia reiterated its long-term dividend guidance and raised the payout in its fiscal first half, while sounding caution about the continuing fallout of the COVID-19 pandemic.
CBA announced a dividend of A$1.50 per share for its fiscal first half, a 53% increase over the 98 cents per share paid in the previous six-month period, after its results for the six months ended Dec. 31, 2020, came in as expected. The payout, however, was 25% less than the A$2 per share in the same period of the previous fiscal year.
Dividends are an important source of income for Australia's retail shareholders, especially retirees. The decision by the biggest Australian bank by assets may herald stepped up payments by rivals Australia and New Zealand Banking Group Ltd., National Australia Bank Ltd. and Westpac Banking Corp.
All Australian banks slashed payouts last year after the Australian Prudential Regulation Authority in April 2020 asked them to consider deferring dividend decisions. 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 dividend payout range, reflective of a period of economic uncertainty and is in accordance with the latest APRA industry guidance released in December," CFO Alan Docherty said during CBA's Feb. 10 earnings call. The bank's long-term dividend payout guidance remains between 70% and 80%, he said. The bank's interim dividend in the six-month period represents a cash payout ratio of 67%.
"It's positive that CBA has given clarity around dividends and while there is still uncertainty on the horizon, CBA is quite well-capitalized at the moment," Omkar Joshi, principal and portfolio manager at Opal Capital Management, told S&P Market Intelligence in an email.
The bank's common equity Tier 1 ratio under the Australian prudential regulator's criteria clocked in at 12.6%, up from 11.6% in the preceding half and 11.7% a year ago. The bank's CET1 ratio on an internationally comparable basis was 18.7%.
Pandemic drag
Cash net profit after tax fell 11% year over year to A$3.89 billion in the first fiscal half, impacted by the low-rate environment and the COVID-19 pandemic. Net interest income inched up to A$9.37 billion from A$9.35 billion, while total banking income inched down to A$11.79 billion from A$11.89 billion, the Australian lender reported.
CEO Matt Comyn said the bank delivered a "strong performance," helped by home lending with growth above system at 1.5% and business lending up 7.4%. However, the CEO sounded caution as several factors could still hurt the bank's performance even as Australia's economic outlook has turned positive.
"We are prepared for a range of scenarios and have taken a careful approach to provisioning. 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," Comyn said in a statement.
S&P Global Ratings analyst Lisa Barrett said CBA's results "were solid and broadly in line" with expectations. "We consider that CBA's strong retail franchise continued to support its above-system loan and deposit growth. While net interest margins declined further due to the impact of the low interest rate environment, lower wholesale funding cost partly offset this," Barrett said in a Feb. 10 note.
Comyn noted that latest forecasts by the Reserve Bank of Australia point 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 rising. The housing market has also been resilient, having fallen only 2% during the course of calendar 2020, he said.
"Overall, our base case is very similar to the reserve bank's latest forecast and their statement of monetary policy last week," the CEO said. However, he said the bank wants to make sure it is "prepared for a number of different risks to that scenario and ensure that the bank and our balance sheet is well prepared for that range of economic scenarios."
The bank's net interest margin was 2.01% in its fiscal first half, down 3 basis points from the previous six months and down 10 basis points from the first half of the previous fiscal year, dragged by lower interest rates and higher liquid assets.
The bank said its total impairment provisions were further increased in the fiscal first half to A$6.8 billion from A$6.4 billion in June 2020 and A$5.0 billion in December 2019, driven by forward-looking adjustments to collective provisions for emerging risks.
"We are very well positioned for the future. Our current level of provisioning is now $1.8 billion higher than the level of provisions that we calculate would be required under our central economic scenario. And certainly, the macroeconomic trends are continuing to point in the right direction," CFO Docherty said.
