Profit of $1.4b bolsters claim worst is over
By Ian McIlwraith | smh.com.au | 10 November
The Commonwealth Bank yesterday declared an end to the worst of the global financial crisis with bad debts having peaked, although the effects of the downturn will continue to wash through the domestic economy for some time.
In a briefing on its performance for the September quarter, in which it laid claim to a $1.4 billion cash profit, up $300 million on the corresponding quarter last year, both the chief executive, Ralph Norris, and the finance director, David Craig, said the economic picture had improved since the bank's annual results in August.
"We are now operating in a more favourable environment than what was the case a few short months ago," Mr Norris said.
"Whilst we have likely reached the top of the bad-debt cycle, asset quality measures still remain at elevated levels. Some of our customers are continuing to face financial hardship and ... the pace and extent of the economic recovery remains unclear, and risks remain."
Mr Craig said what the bank called "troublesome" exposures with commercial customers — almost half of which are in agriculture and property — were still rising, so the bank would continue its conservative settings until it saw those numbers stabilise.
"My sense is that we've hopped over the head and we're sitting on the shoulder of our loan impairment expense, and the question is how broad the shoulders are," he said.
Their call on the outlook lines up with those made by both Westpac and ANZ in their annual results reports in recent weeks, leaving National Australia Bank the most sentimentally wary of the big four.
CBA's unaudited first-quarter figures put it within easy striking distance of breaking the $5 billion profit barrier many analysts are predicting.
The additionally encouraging news that the bank thinks its bad debts may have reached their worst, with its impairment expense of $700 million in line with the June quarter, gave its shares a burst of speed.
CBA was up $2.37 to $55.08 on the day, a gain of 4.5 per cent and well ahead of its rivals — although Westpac's performance was hampered by going ex-dividend 60c a share.
The gain in CBA's shares, which are up more than 50 per cent on this time last year, meant its total market worth at the end of trading yesterday was $84.5 billion — or about $7 billion more than Westpac's, and more than $22 billion greater than NAB's.
Mr Craig said that of the $1.2 billion increase in its troublesome exposures for the quarter, about 50 per cent came from the agricultural sector — mainly in New Zealand's hard-hit dairying industry.
Dairy prices have improved since then, and CBA is expecting its loan book will improve as well.
Overall, Commonwealth increased its troublesome customer amounts by 20 per cent over the previous quarter, to $5.9 billion, while the BankWest loan portfolio bought last year was up by a more modest 15 per cent to $1.5 billion.
BankWest, Mr Craig said, accounted for much of the increase in property impairments.
He pointed out the bank had about $7.8 billion in commercial property loans and "we're not growing the property book, we're just basically working through with our existing customers".
First published by Smh.com.au on November 10 2009
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