CBA profit falls 28 per cent on customer compensation costs
Commonwealth Bank's third quarter profit plunged 28 per cent to $1.7 billion in the three months to March, as it was hit by hefty costs from compensating customers.
In a trading update on Monday, CBA said the slump in earnings, compared with the six months to December, was caused by $714 million in provisions that it took for customer remediation, mainly in its wealth division.
"We are committed to improving outcomes for our customers, addressing past failings and compensating customers quickly," chief executive Matt Comyn said.
"The additional $714 million in pre-tax customer remediation provisions taken in the quarter demonstrates this commitment, and builds on a range of other initiatives to achieve better customer outcomes, including removing and reducing fees for our customers."
CBA said its cumulative spending and provisions on customer remediation, which includes compensation payments and related administrative costs, had now hit $2.17 billion.
Mr Comyn acknowledged the hit to its bottom line, but pointed to growth that included a 2.5 per cent gain in its mortgage book over the quarter, a 2.8 per cent rise in household deposits, and a 2.3 increase in business credit.
"While headline profitability was impacted by higher remediation provisions, our sound business fundamentals ensure we remain well-placed in a challenging environment, highlighted in this quarter by volume growth in our core businesses, a strong capital position and continued balance sheet strength," Mr Comyn said.
Unusually for the bank, it will hold a call briefing investors on the quarterly figures later this morning.
The unaudited figures also showed operating income was down 4 per cent, as expenses rose. Excluding notable items, CBA's profits were still down 9 per cent.
The customer remediation charges for the quarter were dominated by a $334 million set aside to cover costs from its "aligned" financial planners — those who operated under the bank's licence but were not employees.
These included payments over the industry-wide "fees for no service" scandal, where customers were charged for advice that was never provided.
There was a further $72 million in costs from compensating customers of the bank's own wealth operations, $152 million in refunds to banking customers, and $150 million in program costs, including responding to the Hayne royal commission.
In a sign of further pressure on banks' profits, CBA said the cost of impaired loans rose to 0.17 per cent of its loans, up from 0.15 per cent in the first half.
The share of customers falling behind on their mortgage repayments by three months or more rose to 0.61 per cent, from 0.67 per cent, with rises in credit cards and personal loans as well."
"Consumer arrears were impacted by seasonal factors in the quarter and continued to trend higher from a low base, influenced by subdued levels of income growth and cost of living challenges, most pronounced in outer metropolitan areas of Perth, Melbourne and Sydney," CBA said.
The bank said 3 per cent of its mortgage customers were in "negative equity"— where the outstanding balance exceeds the value of the house.
Three quarters of these loans were in Queensland or Western Australia.CBA's common equity tier 1 capital ratio, a key gauge of strength, was 10.3 per cent. After allowing for its first-half dividend payment, the bank said this was a 30 basis point rise.