CBA bad debts begin to climb

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From Watermark via Fairfax:

  • Cash earnings grew by 5% for the full year but declined by 2% in the second half. Cash earnings and underlying profits were all in-line with consensus expectations for both the second half and full year.
  • CBA experienced flat jaws [move in revenue v costs] on a full year basis but negative jaws in the second half, with revenue growing by only 1% while expenses grew by 3%.
  • The final dividend of $2.22 was also in-line with expectations, with CBA paying out 80% of its earnings in the second half and 75% for the full year. The dividend policy has also been maintained going forward of at least 70% payout in the first half and 70-80% for the full year.
  • CBA has experienced net interest margin pressure in the second half with margins declining by 5bps to 2.07% but once again this was as expected.
  • The bad debt charge ticked up in the second half to 18bps from 15bps and was 2bps higher than consensus expectations of 16bps. However, this has been a consistent trend we have seen across most banks recently. In particular, personal loans in arrears over 90 days have continued to tick up since December and appears to be more than just a seasonal uptick post-Christmas. It is also worth noting that provisioning levels have continued to decline which has helped to keep the bad debts charge low. This is not a sustainable trend and at some point will come to an end.
  • CBA has called out near-term uncertainty in the outlook for the Australian economy, however has flagged the lower AUD as a potential positive for the economy and consumer demand.

And climb they will as Western states head into the abyss. Shareholders will not recall the purchase of Bank West fondly.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.