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CBA lifts half-year cash profit 2pc, dividend 1pc

Nicholas Grove  |  15 Feb 2017Text size  Decrease  Increase  |  

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Commonwealth Bank of Australia's (ASX: CBA) cash net profit--a preferred measure of underlying earnings among the big banks--stood at $4.9 billion for the first half of fiscal 2017, up 2 per cent on the same half in fiscal 2016.

Cash earnings per share stood at $2.86, flat on the previous corresponding half, the bank said in a statement to the ASX.

The result was achieved on the back of a 6 per cent rise in operating income to $13,126 million, due to strong home lending and solid corporate lending, along with growth in deposits.

The bank declared a half-year dividend of $1.99 per share, up 1 cent on the prior corresponding half, to be paid on 4 April 2017 to shareholders on record as at 23 February 2017.

The dividend represents a payout ratio of 70 per cent of cash net profit.

Cash return on equity stood at 16.0 per cent, CBA said, while its common equity tier 1 capital buffer stood at 9.9 per cent on an APRA basis, or 15.4 per cent on an internationally comparable basis.

CBA also boasted "positive jaws" for the period under review, with underlying income growth of 3 per cent outpacing cost growth of 1 per cent. The bank's underlying cost-to-income ratio fell 60 basis points to 41.5 per cent.

However, the bank's margins felt the impact of higher funding costs with CBA's net interest margin down 4 basis points to 2.11 per cent.

"We have maintained our commitment to our long-term strategy. We have invested carefully but consistently over many years, leading to ongoing revenue and balance sheet growth, and continuous innovation for our customers," CBA chief executive Ian Narev said.

"At the same time, our emphasis on productivity has ensured that expense growth is fit for the times."

Morningstar senior equity analyst David Ellis said he was impressed with the bank's first-half result, which was in line with his forecast.

"There was a lot to like in the result with strong business momentum, tight cost control, relatively low bad debts, and impressive return on equity standing out," he said.

"The result reinforced our positive long-term opinion of Australia's highly profitable major bank oligopoly.

"Our above-consensus forecast fiscal 2017 cash profit of $9.87 billion is unchanged, as is our forecast $4.25 per share fully franked dividend based on a 74 per cent payout."

Narev said while recent trends in the Australian economy were positive, the combination of geopolitical volatility and weak economic recovery in parts of the world meant the risk of economic shock "remained heightened".

"Our job as a major financial institution is to maintain a focus on the long term, while ensuring that we can withstand nearer-term shocks," he said.

"Our contribution to Australia's economic growth must continue to be the combination of strength and innovation that has served Australia well through global volatility.

"So, we will continue to manage our balance sheet, and our expenditure, conservatively."

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Nicholas Grove is a Morningstar journalist.

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