The economic recovery from the COVID-19 induced recession is continuing apace with Commonwealth Bank reporting an uplift in its third quarter profits to $2.4 billion, driven mainly by lower loan impairment expenses.
Strong home loan growth accompanied by ongoing increases in business lending helped drive the rise in profits for the three months ended 31 March 2021, along with lower loan impairment expenses, which fell $577 million from the 1H21 quarterly average.
Lending to home buyers was up $6.7 billion as the housing market recovery continued to gather pace, with CBA recording a further increase in market share at 1.1 times system growth. Business lending was also well ahead of system growth (greater than three times system).
Both areas underscored the strong performance of the Australian economy following the short-lived recession prompted by the financial impacts of the coronavirus health crisis in 2020, Commonwealth Bank’s CEO Matt Comyn said in the bank’s 2021 third quarter trading update to the Australian Stock Exchange.
“The Bank remains well placed to support our customers and the broader community as the economic recovery from COVID-19 continues,” he said.
“Our disciplined focus on operational excellence was reflected in continued strong operational performance in the March quarter. This was highlighted by strong home loan funding volumes, particularly through our proprietary network, and business lending growth continuing to grow at greater than three times system levels.”
CBA remains “unquestionably strong” based on its current levels of capital that were built up before and then underpinned throughout the pandemic.
The group’s Common Equity Tier 1 (CET1 Level 2) ratio stood at 12.7 per cent as at 31 March 2021 which was up 10 basis points, notwithstanding the payment of the first half 2021 interim dividend totalling $2.7 billion to more than 880,000 shareholders.
The improved economic outlook also flowed through to the group’s loan impairment expenses which were significantly lower in the quarter and translated to a $300 million reduction in total credit provisions to $6.5 billion as at 31 March 2021. Nevertheless, provision coverage remains strong and continues to reflect a cautious approach to managing risks as the recovery from the COVID-19 pandemic continues.
Loan loss rates equated to minus 7 basis points of average gross loans and acceptances, while troublesome and impaired assets fell $0.4 billion to $7.8 billion, driven by improvements in the corporate lending portfolio.
Consumer arrears over 90 days also continued to fall – highlighting the improving economic picture nationally.
Operating income during the quarter rose 2 per cent, while operating expenses were up 2 per cent as a result of higher investment spending, higher volume-related costs and an increase in remediation costs, partly offset by the benefits of the bank’s simplification program.
The bank’s loan deferral program – that was put in place at the start of the COVID-19 crisis – has helped customers manage their home loan and business loan repayments.
The program came to an end in March this year under the timetable set out by the banking regulator, the Australian Prudential Regulation Authority.
CBA supported 158,000 home loan customers (to the value of $54 billion in mortgages) and 83,000 business loan customers through the program, with the vast majority having now resumed regular repayments.
Of the home loan customers who entered into deferral arrangements, 81 per cent have now returned to their pre-COVID affected terms; 10 per cent have closed their accounts; 4 per cent have switched to interest only arrangements; 1 per cent are impaired or have been restructured; and the remaining 4 per cent (6,000 customers) require ongoing support.
All business customers have now concluded their deferral arrangements, with the great majority having resumed regular repayments on their loans.