CBA Profit Beats Expectations on Australian Economy’s ‘Remarkable Achievement’

Above Expectations performance from Commonwealth Bank of Australia.

The Commonwealth Bank of Australia recently released its reports which shows a 21 per cent decrease in net profit as the country enters its first recession in over 30 years. But it had a shallower downturn and predicted a faster economic recovery.

One of the major indicators of this recovery is that over 80 per cent reduction in mortgages and over 97% reduction in small business loans that are still on repayment deferrals when compared with the data from June.

According to the chief executive of CBA, Matt Comyn, this outcome is due to a better economy than what the bank expected. While the bank was expecting at least 5% GDP contraction, the actual contraction was about half of the forecast.

Another major factor is the labour market recovery which has been very strong. Unemployment currently sits at 6.6%.

With their economic performance, CBA was able to report a profit of $4.88 billion after-tax as of the second half of the year reaching December 31. Using the measure of cash profit that it prefers in which the one-off losses and gains are excluded, profit was $3.89, down by just 11%.

The major difference between the two profit reports is the fact the various businesses that CBA recently offloaded such as the CommInsure Life and Colonial First State.

According to Jonathan Mott, a banking analyst at UB, the cash profits exceed market expectations by over $100 million. In his opinion, this is a solid result capable of providing CBA with the momentum it needs for the second half of the financial year.

However, Mr Comyn was cautious in his optimism, saying while ending the JobKeeper in March may not derail the economic recovery, it will certainly test the strength and stability of the economy. The Chief executive also admits that foreclosures of business loans and mortgages will increase this year as more people who cannot pay meet the demands and are yet to recover from the COVID effects may have to close down businesses and lose homes.

Even though the bank reports a better economic environment than what was expected, it claims that reduction in cash earnings is due to both COVID-19 recession and low-interest rates as the bank had to give out more bad debt. However, while bad debts might have increased, the deferral of loans has reduced greatly, thereby making it worthwhile for the bank in the long run.

The loan impairment provisions at the bank increased from $5 billion before COVID to $6.8 billion while the troublesome and impaired assets also increased to $8.2 billion. This increase has yielded positive results with the reduction in bad debts.