CBA results hit by $575m regulatory costs

by Manuelita Contreras08 Feb 2018

CBA’s results in the first half of FY18 took a hit from the $575m it has set aside for penalty and regulatory costs. 

The bank said yesterday (7 February) that it has earmarked $375m for a potential civil penalty related to alleged AML contraventions, and $200m for regulatory and compliance costs, including the royal banking commission.

Its cumulative risk and compliance spend has grown by a compound annual growth rate of 33% from FY13 to the first half of FY18.

"We have taken a significant provision for regulatory and compliance costs, consistent with accounting standards. We have also taken a $375m expense provision which we believe to be a reliable estimate of the civil penalty a court may impose in the AUSTRAC proceedings,” said outgoing CEO Ian Narev.

The company called the first half of the current financial year a period for fixing its mistakes.

Its cash net profit after tax for the first half of FY18 went down by 1.9% from a year ago to $4.7bn. 

Total operating income increased by 2.3% to $13.1bn, which the company said was primarily driven by a 6.2% increase in net interest income.

Home loan growth moderated to 5.2% in the 12 months to December 2017, lower than the system growth of 6.3%. The company said it is the result of balancing regulatory requirements, returns, and risk.

The growth was dragged down by the slow increase in investment home loans following APRA's capping of this kind of lending in March last year. Investor home loans increased by 0.5%, while owner-occupied loans grew 7.5%.

Meanwhile, interest-only lending comprised 21% of total flows at the end of December 2017, down from 38% six months ago.

CBA's increased focus on its proprietary channels is bearing fruit. Retail proprietary channels accounted for 64% of home loan flows in the first half of FY18 -- significantly up from 57% the previous year and much higher than the market rate of 44%.

Brokers accounted for only 36% of its home loan portfolio, significantly down from 43% at the end of June 2017.

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