CBA's ASB full-year profit rises 13% on smaller impairments; Sovereign attracts suitor

Wednesday 9th August 2017

Commonwealth Bank of Australia's New Zealand earnings were boosted by a 13 percent gain in ASB Bank's cash profit as the kiwi lender benefited from smaller charges on bad debt and stripped out costs to keep on top of shrinking interest margins.

ASB's cash profit, lenders' favoured earnings measure, rose to $1.03 billion in the 12 months ended June 30 from $914 million a year earlier, as impairment charges almost halved to $69 million, and net interest earnings gained 5.1 percent to $1.85 billion outpacing a 1 percent increase in operating costs to $834 million. Net profit, which includes unrealised movements in the value of financial instruments, jumped 17 percent to $1.07 billion.

"Over the past year we have remained focused on delivering sustainable, diversified balance sheet growth across our key customer portfolios," ASB chief executive Barbara Chapman said in a statement. "All our business units performed well and we continue to experience sustained momentum, despite some external headwinds and a rapidly evolving financial services market."

ASB's loan book expanded to $78.1 billion as at June 30 from $72.08 billion a year earlier, with home loans up to $51.23 billion from $47.74 billion. Customer deposits rose to $58.2 billion from $54.7 billion. The lender's net interest margin shrank to 2.18 percent from 2.33 percent, while ASB trimmed its operating expense ratio of income to 35.8 percent from 37.2 percent.

"Thanks to our strategic focus on productivity, we have succeeded in containing costs, simplifying our processes and improving efficiency," Chapman said. "Ultimately, this allows us to invest in providing exceptional experiences to customers across our business whether they choose to interact with us in person or digitally."

The bank drove a 9 percent earnings gain in CBA's New Zealand unit, which includes insurer Sovereign Assurance, to $1.07 billion. Sovereign's annual earnings dipped 3 percent to $102 million as low interest rates pushed up the cost of policy liabilities. Insurance income rose 10 percent to $252 million with a 3 percent increase in annual in-force premiums to $755 million, almost 28 percent of the market.

CBA's Australian and New Zealand life insurance businesses - CommInsure and Sovereign - have attracted potential buyers, which the lender said could "lead to the divestment of those businesses" and it's considering "a full range of alternatives, including retaining the businesses, reinsurance arrangements or other strategic options". ASB bought Sovereign in 1999 for $235 million.

The Australian banking group posted a 7.6 percent increase in net profit to A$9.93 billion, and hiked its annual dividend payments to A$4.29 a share from A$4.20 a year earlier. The strong result comes as CBA found itself facing civil proceedings by the Australian Transaction Reports and Analysis Centre over claims money was laundered through its smart-ATMs in Australia.

The New Zealand lender paid ordinary dividends totalling $450 million in the 2017 financial year to its Australian parent, up from $200 million a year earlier. It also paid $56 million in dividend to perpetual preference shareholders, up from $49 million in 2016. It paid $340 million in taxes in the year, down from $350 million a year earlier.

CBA's ASX-listed shares last traded at A$80.65 and have declined 2.1 percent this year.

(BusinessDesk)

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