10/02/2010 - 08:13

Bankwest books $64m H1 cash profit

10/02/2010 - 08:13


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Bankwest has returned to profitability, today posting a first-half cash profit of $64 million while its parent company, Commonwealth Bank of Australia, increased its cash profit by 54 per cent.

Bankwest books $64m H1 cash profit

Bankwest has returned to profitability, today posting a first-half cash profit of $64 million while its parent company, Commonwealth Bank of Australia, increased its cash profit by 54 per cent.

Bankwest's net cash profit compares with a $110 million net cash loss in the six months ending December 31 2008.

The bank's total banking income grew to $848 million, up 38 per cent on the previous corresponding period and contributing 9 per cent of CBA's total operating income of $9.55 billion.

CBA said in an analyst presentation that Bankwest's banking income was underpinned by strong mortgage growth and improved net interest margins, CBA said in an analyst presentation.

Bankwest's impairment expense levels still remained high at $313 million for the first half of the 2010 financial year, slightly lower than the $344 million recorded in the previous corresponding period.

CBA said in the presentation that the post acquisition focus of Bankwest on profitable growth via cost discipline and margin management was starting to pay off.

At the end of the reporting period, Bankwest had 989,000 customers, up 3 per cent on the prior half-year period of 960,000.

Meantime, CBA said it increased its first half cash profit by 54 per cent after bad debt charges declined.

But the stock declined over 1.5 per cent to a two-month low because investors were disappointed CBA wasn't going to pay more of its earnings as dividends in the future.

Chief executive Ralph Norris said the first half result was very good, leading to an improvement in the interim dividend.

"Today's result demonstrates the resilience of our business model and the underlying strength of each of our businesses," he said.

"As a result we are entering 2010 in a strong position."

CBA's cash net profit for the six months ended December 31 jumped to $2.943 billion from $1.906 billion in the previous corresponding period.

The cash result, which was in line with expectations, is the bank's preferred measure of profitability because it takes out non-cash items.

The Sydney-based bank's statutory net profit rose 13 per cent to $2.914 billion.

The bank benefitted from strong home loans growth, a rebound in its institutional banking and markets division and net interest margins recovering across the board.

CBA's lending growth is likely to continue, as it utilises its market leading position to take advantage of the expected overall increase in loan demand.

"Australia now appears to be on the road to a sustainable economic recovery," Mr Norris said.

"That is likely to bring with it a gradual improvement in demand for credit in the 2010 calendar year."

CBA shares declined 89 cents, or 1.69 per cent, to close at $51.83, the lowest since November 27.

"People were a bit nervous about the cut to the payout ratio," said research house and fund manager Lincoln Indicators chief executive Elio D'Amato, whose fund manages about $115 million. .

CBA declared an interim dividend of 120 cents per share, compared with 113 cents the year before.

The payout ratio was 63 per cent of earnings, down from the prior year's 84 per cent.

But Mr D'Amato noted CBA was benefitting from passing of the worst of the cycle of bad debts driven by the global economic downturn.

"For long term investors it was a comforting result," he said.

CBA's impairment expenses for the half year declined 29 per cent to $1.383 billion.

Chief financial officier David Craig said future declines would be gradual.

"There won't be a sudden drop because there's always a lag for consumers compared to corporates," he told journalists.

"We are over the corporate peak but there's some difficulty for retail consumers."

CBA's total provisions for loan impairments had increased 47 per cent to $5.244 billion as the bank set aside more money to cover bad debts, particularly amongst retail customers.

But the bank was able to return its margins to pre-financial crisis levels in the first half, even as funding costs kept rising.

Its net interest margin rose to 218 basis points, from 216 basis points six month previously, and the highest margin since June 2006.

"It's taken three and a half years to claw back our margins," Mr Craig said.

CBA has 31.3 per cent of Australian household deposits, 26 per cent of the country's home loans, and also has one of the biggest fund managers in Colonial First State.

CBA's first half result was on a pro-forma basis and treated its acquisition of BankWest in late 2008 as part of the bank in the previous first half period.


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