Commonwealth Bank of Australia, the country's largest lender, on Wednesday declared a higher dividend than from six months ago as it beat first-half cash profit estimates, driven by lower provisions and growth in home and business lending.
The result shows the country's banking sector entering 2021 on a strong footing, as Australia's A$2 trillion economy recovers having largely contained its coronavirus outbreak.
Australia's largest lender declared an interim dividend of A$1.50 per share, up from the A$0.98 final dividend announced in August, but lower than last year's payout of A$2.00 per share.
At 67% of cash earnings, the bank's dividend payout ratio remains below its self-imposed target of between 70% and 80% of profit.
Australian banks, like their global peers, were hit severely in 2020 as near-zero interest rates and bad debt provisions due to the pandemic squeezed their margins.
However, a recent pickup in loan repayments by customers following stronger employment growth and a surge in demand for new homes due to record-low mortgage rates have helped improve the outlook for the banking sector.
"Although the outlook is positive, there are a number of health and economic risks that could dampen the pace of recovery," Chief Executive Officer Matt Comyn said in a statement.
"The low interest rate environment will continue to put pressure on our revenue."
Comyn said CBA's balance sheet was "the strongest it's ever been" with A$10 billion of extra capital above the regulator's minimum requirement, a sign shareholders might see some of that capital returned in the near future.
Its common equity tier 1 ratio rose to 12.6% at Dec. 31 from 11.8% as at Sept. 30, 2020.
Credit Suisse analyst Jarrod Martin said the higher dividend "with expectations of a return to a long-run 70-80% payout ratio together with strength in capital" were likely to be well received by investors.
Cash net profit after tax from continuing operations fell to A$3.89 billion ($3.01 billion) for the six months to Dec. 31, from A$4.36 billion a year earlier. It beat the average estimate of A$3.76 billion by six analysts polled by Reuters.
Bad debt provisions of A$882 million were 53% lower than those booked in the previous half.
CBA's Big Four peers report earnings in May.
($1 = 1.2927 Australian dollars)
(Reporting by Paulina Duran in Sydney and Shriya Ramakrishnan in Bengaluru; Editing by Ramakrishnan M. and Sam Holmes)
