The Commonwealth Bank of Australia (ASX: CBA) share price is down 0.80% this morning after the bank slashed its dividend. The bank released its full year results this morning revealing an 11.3% decline in cash profits thanks to higher loan impairment expenses due to COVID-19.
What were CBA’s full year results?
Australia’s largest lender reported a decline in cash net profit after tax (NPAT) from continuing operations, which fell 11.3% to $7,296 million, largely due to higher loan impairment expenses. As at 31 July, the bank had 135,000 COVID-19-related home loan deferrals and 59,000 business loan deferrals. Loan impairment provisions increased to $2,518 million, a $1,317 million increase on FY19. Surprisingly, statutory NPAT increased 12.4% to $9,634 million, thanks to gains on the sale of divestments.
Commonwealth Bank was able to report a strong underlying business performance with volume growth across its core businesses. Above market growth was achieved in home lending and deposits. Home lending grew at 1.3x system growth while household deposits grew by $25 million or 9.8%. Business lending increased 5.1% over FY19 showing momentum due to investments in new products, service, and technology.
What happened to the dividend?
Bank shares have long been a staple of dividend investors, but these same investors have been disappointed by falling bank dividends in recent times. There had been speculation CommBank might even fail to pay a final dividend. This morning the bank declared a final dividend of 98 cents per share, fully franked.
This means investors received total dividends of $2.98 from the bank over the year, a 31% decrease on FY19. The reduced dividend reflects APRA’s guidance that banks should retain at least 50% of earnings. The final dividend payout ratio was 49.95% of second half statutory earnings.
What’s next for Commonwealth Bank?
The bank has now substantially completed the divestment of its wealth management businesses in line with its simpler, better bank strategy. Commonwealth Bank says it has prepared for a range of economic scenarios as the economy moves from crisis to recovery. Operational performance remains strong despite the challenging environment. The group has a strong capital position with a capital ratio of 11.6%, above APRA’s 10.5% benchmark. Commonwealth Bank intends to focus on retail, business, and digital banking to deliver long-term performance and returns for shareholders.
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Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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