CBA to ‘outweigh near-term threats’

In a Morningstar research report released this week, analyst David Ellis noted that CBA’s underlying fundamentals are supportive of steady and consistent earnings growth based on good loan and deposit growth, stable asset quality, well-managed NIMs, tight expense control and a strongly capitalised balance sheet.

“Underlying fundamentals have not changed with concerns around a potential slowdown in economic growth, pressure of NIMs and increasing financial pressure on household budgets,” Mr Ellis said.

“Overhanging fundamentals is increasing uncertainty around AUSTRAC’s anti-money laundering court case, APRA’s prudential inquiry and the Royal Commission into Australia’s financial services sector.”

Morningstar’s forecast for CBA’s full-year 2018 cash profit remains unchanged at $10.3 billion. Annualised loan growth is expected to be around 5 per cent, down slightly from the 5.5 per cent loan growth achieved over the year to 30 November 2017.

“Commonwealth Bank’s large size and earnings momentum largely outweigh near-term threats, but we remain cautious of worse-than-expected outcomes from the AUSTRAC court case, APRA’s prudential inquiry and the Royal Commission,” Mr Ellis said.

“Despite rising negative sentiment towards the Australian economy and the Australian major banks, we have a differentiated outlook and believe the banks are well placed to leverage modest growth in the economy, particularly in the more populous and prosperous eastern states dominated by the capital cities of Sydney, Melbourne and Brisbane.”

In August, it was revealed that Australia’s financial intelligence and regulatory agency, AUSTRAC, had initiated civil penalty proceedings in the Federal Court against the Commonwealth Bank of Australia (CBA) for “serious and systemic non-compliance” with anti-money laundering and counter-terrorism laws.

AUSTRAC’s civil case alleged that there were 53,000 contraventions of the AML/CTF legislation involving CBA’s intelligent deposit machines (IDMs) that allowed criminal syndicates to launder money overseas. This is one of the allegations that CBA has admitted.

Last month, CBA has admitted that it breached anti-money laundering and counter-terrorism laws in its response to the civil proceedings commenced by AUSTRAC.

[Related: CBA apologises to shareholders]