CBA profits dropped in 1Q21 but book continues to grow

The Commonwealth Bank of Australia (CBA) has announced that its cash profits for the first quarter of the 2021 financial year (ending September 2020) had slumped 16 per cent year-on-year, but said growth in its lending divisions was helping slowly offset the impacts of COVID-19.

CBA announced an estimated cash net profit after tax of $1.8 billion, down 16 per cent on the same period last year (when it was $2.2 billion).

According to the major bank, the loss was primarily due to an increase in the group’s loan loss provisions to “cover the expected impact of COVID-19 on its customers and reduced earnings from lower interest rates and lower fee income”.

This included higher staffing costs (for example, through reduced leave being taken and increasing staffing levels to support customers during COVID). 

CBA has set aside more than $1.7 billion in credit provisions since December 2019 to offset the expected COVID-19 impacts on customers, taking total credit provisions to $6.7 billion. 

This represents a total provision coverage of 1.81 per cent (as a percentage of credit risk weighted assets), an increase of 11 basis points from the position at the end of the group’s 2020 financial year on 30 June 2020.

The bank said it had reduced its expenses over the quarter but was expecting further customer remediation costs in the second half of the financial year.

CBA said continuing repayment deferrals and government support had “insulated” any issues in its loan book, adding that it had seen home lending increase by $5.6 billion and business lending by $1.4 billion over the quarter.

Loan deferrals as at September 2020 had dropped, with 73 per cent of mortgage customers with repayment deferrals having returned to full repayments.

Just under a quarter (23 per cent) were granted an extension, with 4 per cent required further assistance.

The bank also revealed that 95 per cent of business customers on deferred repayments had returned to full payments, with just 3 per cent requiring extensions (and 1 per cent requiring further assistance).

Household deposits also grew by $15.8 billion, the update showed.

Despite the declining profit, CBA chief executive Matt Comyn said “disciplined execution of [its] strategy” was helping the bank avoid worse outcomes.

“Our strong balance sheet, focus on operational excellence and the dedication and commitment of our people ensure we remain well placed to support our customers and the wider community through the ongoing challenges of COVID-19,” Mr Comyn said.

“We continue to contact customers with a range of options as they approach the end of temporary loan repayment deferral periods, and have been encouraged by the number of customers who have been able to return to making repayments on their loans,” Mr Comyn said.

The update from CBA shows that the bank is in a relatively strong position compared with some of the other big four banks. 

While CBA does not report in the same manner as ANZ, NAB and Westpac (who have all now reported their annual results for the year ending September 2020), its growth has also been reflected in recent APRA data.

According to the Australian Prudential Regulation Authority (APRA) monthly authorised deposit-taking institutions statistics for September, the mortgage portfolios of ANZ and CBA posted a combined total growth of around $5.3 billion over September, driven by an increase in owner-occupied lending.

Meanwhile, the other two major banks reported a contraction.

[Related: Major banks split on mortgage portfolio growth]