The Commonwealth Bank of Australia (ASX: CBA) share price is currently down approximately 1.5% after reporting its FY21 interim result and declaring a bigger dividend.
CBA's half-year dividend
The CBA board of directors decided to declare an interim dividend of $1.50 per share, fully franked. That was a 25% decrease on the FY20 half-year dividend, but it was a 53% increase on the second half of FY20.
CBA's dividend represented a dividend payout ratio of 67% of the cash profit, which was below the board's target payout range.
FY21 half-year result
For the six months to 31 December 2020, the big bank generated $4.88 billion of statutory net profit after tax (NPAT). Cash NPAT was $3.89 billion, down 10.8% compared to the prior corresponding period.
The big four bank explained that NPAT was supported by strong business outcomes but impacted by the low interest rate environment and COVID-19. The statutory NPAT includes the gains on the sale of divestments, including the completion of BoComm Life.
CBA said that its loan impairment expense increased by $233 million compared to the prior corresponding period to $882 million. The provision coverage ratio to credit risk weighted assets was 1.81%. This was increased to reflect the uncertain economic outlook and emerging industry risks, in particular for the aviation and entertainment, leisure and tourism sectors.
In terms of consumer arrears, CBA said that arrears on home loans and consumer finance remain low, and are currently being insulated by COVID-19 support measures. APRA's regulatory approach is that loans currently in deferral as part of COVID-19 support packages are not included in arrears. At 31 January 2021, approximately 25,000 home loans were in deferral (with a balance of $9 billion), down from 145,000 homes loans at 30 June 2020 which represented a balance of $51 billion.
The bank's operating income was down slightly, though the net interest income was flat with strong volume growth across core banking businesses helping to offset the impact on the net interest margin (NIM) of lower interest rates and heightened competition. The NIM decreased by 10 basis points compared to the prior corresponding period, due to higher liquid assets and the impact of the low rate environment on deposit margins and earnings on capital.
Operating expenses increased by 2.3% excluding $241 million of remediation costs. There was a higher investment spend, with an increase of 34%, with continued investment across the business driven primarily by increased investment in digital areas.
Turning to the common equity tier 1 (CET1) capital ratio, it was 12.6%, up 100 basis points from 30 June 2020. This was above APRA's 'unquestionably strong' benchmark of 10.5%. This increased from organic capital generation from profit generation as well as from the proceeds from the sales of businesses like BoCommLife and CommInsure Life.
CBA's outlook
The big bank said that it remains committed to supporting customers and helping the economy recover.
CBA believes that Australia is relatively well positioned having started from a position of fiscal and economic strength. The bank pointed out that there is a solid pipeline of infrastructure projects, the outlook for mining and agriculture exports is strong and the community has benefited from the government's significant income support measures.
Although the outlook is positive, there are a number of health and economic risks that could dampen the pace of the recovery, according to CBA. The big bank is prepared for a range of scenarios and has taken a careful approach to provisioning. It's closely monitoring its portfolios for signs of stress.
