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CBA seeks to sell more noncore assets to improve shareholder returns, compliance

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CBA seeks to sell more noncore assets to improve shareholder returns, compliance

Commonwealth Bank of Australia decided to exit South Africa and is reviewing its investments in Vietnam and Indonesia, as Australia's biggest bank continues to retreat from overseas and noncore markets in a bid to improve shareholder returns and regulatory compliance.

CBA said Aug. 8 it plans to sell Commonwealth Bank of South Africa (Holding Company) Ltd., or TymeDigital, to minority shareholder, African Rainbow Capital, for an undisclosed sum. CBA said it will book an impairment of A$91 million on the sale, which is subject to regulatory approval.

The latest planned sale came after the bank posted a 5% year-over-year fall in net profit for the fiscal full-year ended June 30, the first decline in nearly 10 years, amid higher compliance costs and slower loan growth.

CEO Matthew Comyn said in a same-day earnings call that the ongoing simplification of the bank's portfolio is "both the response to the [public] inquiry as well as to strengthen our management of customer and risk outcomes." The inquiry referred to an earlier review launched by the Australian Prudential Regulation Authority, or APRA.

Delivering his first financial result after taking over from Ian Narev earlier this year, Comyn also said CBA will continue to invest in its retail and commercial banking operations, which the lender has "competitive advantage" and delivered more than 90% of the bank's fiscal 2018 net profit.

The bank has been selling noncore businesses as it focuses more on domestic market. It sold its life insurance business in Australia and New Zealand in 2017 to AIA Group Ltd. for A$3.8 billion. It also sold a 37.5% equity interest in BoCommLife Insurance Co. Ltd. to Mitsui Sumitomo Insurance Co. Ltd. and is in the process of demerging its wealth management and mortgage broking operations.

Comyn said the bank is conducting a strategic review of its 20% stake in Vietnam's VIB bank and its life insurance business in Indonesia. It is also looking into a potential sale or partnership of its general insurance business unit.

Prioritizing compliance

Streamlining operations aside, compliance and related investments will also be a priority for the bank in fiscal 2019.

"The proportion of risk and compliance spend as we talked about is elevated and is likely to remain elevated," Alan Docherty, acting CFO, said during the earnings call.

For fiscal 2018, CBA booked an A$700 million penalty the bank agreed in June to settle money laundering charges filed by the Australian Transaction Reports and Analysis Centre, and additional provisions of A$389 million related to financial crimes compliance and regulatory investigations, among others.

In May, it agreed to add A$1 billion to its capital requirement following the APRA inquiry, after the regulator found "inadequate oversight" from the bank's senior leadership.

The lender is also one of the targets in the ongoing public inquiry, known in Australia as the Royal Commission, which looks into bank conduct and consumer protection.