Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Commonwealth Bank of Australia (CBAUF, Financial) delivered $8 billion in dividends, benefiting more than 13 million Australians.
- The bank invested over $800 million to combat fraud, scams, financial, and cybercrime, reducing customer scam losses by more than 50%.
- CBAUF maintained strong liquidity, funding, and capital positions, with a capital ratio of 12.3%, well above regulatory requirements.
- The bank's customer focus led to an increase in retail transaction accounts by 5% and business transaction accounts by 9%.
- CBAUF's digital ecosystem continues to grow, with the CommBank app having over 8.5 million active users and the CommBank Yello rewards program engaging over 8 million customers.
Negative Points
- Operating expenses increased by 4.1% over the year, driven by inflationary pressures and higher technology spend.
- Net interest income fell despite 3.4% growth in average interest-earning assets due to competitive pressure on margins.
- Loan impairment expenses were $802 million, with an increase in arrears across home loans, credit cards, and personal loans.
- The bank expects further increases in arrears in the coming months due to continued pressure on household disposable incomes.
- Competitive intensity in the banking sector remains high, impacting both lending and deposit margins.
Q & A Highlights
Q: Can you explain the impact of deposit mix and pricing on the net interest margin (NIM)?
A: Alan Docherty, CFO: The 6 basis points impact can be split into 4 points from savings pricing and 2 points from term deposit spreads. The significant amount of bonus rates on our Goal Saver product has influenced this mix shift.
Q: What is the outlook for the replicating portfolio tailwinds?
A: Alan Docherty, CFO: We increased the level of replication as deposit switching stabilized. The future benefit will depend on where three-year and five-year swap rates land, which have been volatile recently.
Q: Can you discuss the performance of recent mortgage vintages?
A: Alan Docherty, CFO: Recent vintages have performed slightly better than expected, despite having less time to build up prepayment buffers. The overall performance is better than forecasted 12 months ago.
Q: What is driving the recovery in consumer finance revenue?
A: Matt Comyn, CEO: It's a mixture of fee income and rate environment responsiveness. We also aligned the amount of interest-free days on credit card products, which improved net interest earnings.
Q: How has the Commonwealth Bank achieved such a high share of migrant customers?
A: Matt Comyn, CEO: Our long-standing focus on new accounts from youth and migrants, combined with visibility and awareness efforts, has driven this growth. The tenure of these customers varies, but we have a specific focus on those with pathways to permanent residency.
Q: Are you more comfortable with the pricing and returns on new home loans?
A: Matt Comyn, CEO: Yes, we are more comfortable now than 12-18 months ago, but we remain watchful about margins. Competitive intensity has increased recently, which we are monitoring closely.
Q: Why hasn't the Commonwealth Bank been more active with share buybacks?
A: Matt Comyn, CEO: We consider various factors, including market conditions, opportunity cost of holding capital, and differences in spreads between funding instruments. Our core principles remain unchanged, and we see value in reducing the share count over time.
Q: What is the impact of rate cuts on NIM?
A: Alan Docherty, CFO: The sensitivity will depend on pricing decisions on both the asset and liability sides of the balance sheet. The best approach is to maintain earnings stability through the replicating portfolio.
Q: Can you discuss the trends in switching from low-cost deposits to higher-rate deposits?
A: Alan Docherty, CFO: The rate of switching has slowed, but it continues. We have allowed some higher-cost deposits to flow out, particularly in the business and institutional term deposits.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
