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Australia’s Commonwealth Bank Increases Dividend Even as Profit Declines

Nabila Ahmed
·2 min read

(Bloomberg) -- Commonwealth Bank of Australia, the nation’s largest lender, increased its dividend payout even as profit declined, in welcome news for retail shareholders who saw their income slashed during the pandemic.

Cash profit from continuing operations fell 11% to A$3.89 billion ($3 billion) in the six months ended Dec. 31 as bad loans climbed and its net interest margin shrank, the Sydney-based bank said in a statement Wednesday.

For key numbers from the earnings report, click here

The bank said it will pay a dividend of A$1.50 per share, equal to 67% of earnings, and just below the board’s target payout range of 70%-80%. That’s up from a A$0.98 payment in the second half, when bank payouts were restricted by the prudential regulator to conserve capital during the coronavirus pandemic.

The move is a boon for Australia’s legion of retail shareholders who rely on bank dividends for retirement earnings and heralds higher payouts from the nation’s other three large banks this year. Australia & New Zealand Banking Corp., National Australia Bank Ltd. and Westpac Banking Corp. all reduced or suspended payouts last year, but are set to restore payments after the regulator scrapped its cap on dividends in December.

Commonwealth Bank shares rose slightly in early morning trading in Sydney on Wednesday, up 0.2%. The stock has risen about 60% from its lows in March during the first outbreak of the virus.

Chief Executive Officer Matt Comyn said the outlook for the bank was positive, but a number of health and economic risks could damp the pace of recovery. “The low interest rate environment will continue to put pressure on our revenue,” Comyn said in the statement.

The bank’s bad-loan expenses increased 36% to A$882 million compared with a year earlier, amid growing risks with some customers, including in the airline and tourism industries. It increased provisions for bad loans to $6.8 billion, up from $5 billion a year ago.

Commonwealth Bank, Australia’s biggest mortgage lender, said government stimulus had helped cushion customers from falling behind on their loan repayments. The number of home loan deferrals was down to 25,000 as of Jan. 31, from 145,000 on June 30 amid the height of the pandemic.

UBS Group AG analysts led by Jonathan Mott said the recovery in revenue in the quarter ended Dec. 31 should give the bank momentum into the second half. Better revenue, lower credit impairment charges and possible buybacks at the full-year earnings results could underpin consensus upgrades, they wrote in a note to clients.

(Adds shares, analyst commentary from sixth paragraph)

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