CBA profit dips for first time in decade as mortgage arrears spike

CBA profit dips for first time in decade as mortgage arrears spike
CBA profit dips for first time in decade as mortgage arrears spike

The Commonwealth Bank of Australia has posted a full-year cash profit of $9.233 billion, down some 4.8 percent.

The last time the bank posted a weaker profit was in 2009.

The result includes $400 million in regulatory costs. The decline was mostly driven by a $700 million penalty paid to AUSTRAC after it breached anti-money laundering laws.

CEO Matt Comyn said the results concluded what had been "a difficult 12 months" for the bank.

"I wanted to start by thanking all of our people right throughout the business who have worked incredibly hard in challenging circumstances to deliver a result of $9.2 billion, which at a headline level is down 4.8 percent, although there has been a number of one-off items that have impacted the result, including a couple of large penalties that we have resolved," said Comyn.

"If you strip some of those out, actually the result looks more from an underlying perspective up 3.7 percent."

Comyn said he recognised the impact the bank's mistakes were having on customers.

"We just have to recognise we have not done a good enough job for our customers. We got some things wrong. We have made mistakes," said Comyn.

"We absolutely need to make sure we do not make them again. And a big part of my job of course is making sure we are a simpler and better bank for our customers, working closely with any customers who have not had a good experience, but most importantly making sure that those sorts of issues do not recur.

"Ultimately it is going to be something that our customers need to decide, and I am very comfortable, and feel very accountable, for ensuring that we deliver great experience and outcomes for our customers over the long term."

The Commonwealth Bank board declared a full year, fully franked dividend of $4.31.

It noted switching from interest-only mortgages was stressing some borrowers.

The number of home loan borrowers late on repayments spiked, but Comyn said customers have been able to get payments back on track by paring back their spending elsewhere.

CBA advised a 10 basis point increase in the number of customers more than 90 days late on their home loan repayments - from 0.60 per cent to 0.70 per cent of borrowers. 

Comyn said he did not expect the arrears levels would deteriorate further and that "over time, the customers adjust to the new payments".

Analysts asked Mr Comyn about the rising arrears during the results briefing, with Macquarie's Victor German observing the number is a "historical leading indicator for deteriorating credit quality". 

CBA is the largest mortgage lender in Australia, with 1.5 million home loan accounts with a total balance of $374 billion.

Of these, 64 per cent of borrowers are owner occupiers. 

Some 30 per cent of CBA mortgage customers are on interest-only loans, down from 39 per cent a year ago. 

Around 27 per cent of CBA's interest only borrowers are expected to switch to principal and interest loans in FY2019 with the bank writing to interest only borrowers 12 months before their loans reset to warn them of the changes.
 
The AFR noted the briefing was advised 79 per cent of customers coming to the end of an interst only period have an opportunity to extend the interest-only terms for a further year. 

CBA said the uptick in mortgage arrears reflects "pockets of stress" in the economy, mostly in Western Australia, where the bank saw "continued softness in outer metro and regional" areas rather than mining towns, and in the Northern Territory, where its small book was hit by rising unemployment as resource projects were completed.

 

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