The Tribune

• Commonwealth eyes $50-$60m bottom line

• $5.9m payout to take return to 27% of profit

• COVID loan loss reversals won’t go into ‘23

Commonwealth Bank will this month “double” its quarterly dividend payment, and return more than 27 percent of year-to-date profits back to shareholders, as it forecasts returning to pre-Dorian annual profits of $50m-$60m for 2022.

Tangela Albury, the BISX-listed bank’s vice-president and chief financial officer, told Tribune Business that its 2022 earnings performance and the improving outlook for both tourism and employment had given it the necessary confidence to return quarterly dividend payments to two cents per share.

That first such payment, due to be paid on September 30 to all shareholders of record as at this Thursday, September 15, will be the first two-cent dividend in more than two years. And the total $5.9m payout will take total capital returns to Commonwealth Bank investors to around $11.7m for 2022 to-date and, potentially, $17.6m in regular dividend payments for the full year if the same is repeated for the fourth quarter.

“We have changed our dividend payment to now two cents per share. We’ve doubled the quarterly dividend payment this quarter back to where we were pre-COVID and pre-Dorian,” Ms Albury told this newspaper. “For the last two years we’ve been at one cent per quarter. This quarter we’ve moved back to two cents, consistent with pre-COVID.

“The dividend payment will be made on September 30, 2022, to shareholders of record on September 15, 2022. The total third quarter dividend proposed to be paid will be approximately $5.9m. Total dividends paid to shareholders up to September 30, 2022, will be approximately $11.7m compared to the total profit of $42.8m up to June 30, 2022, and will represent 27.3 percent of the total profit to that date.”

Maintaining a two cent quarterly dividend for the full year would take total capital returned to Commonwealth Bank shareholders to around $23.6m in 2023. The BISX-listed commercial bank, which focuses primarily on personal loans and consumer lending, more than wiped out 2021’s COVID-driven loss in the first six months of this year, generating a $42.793m bottom line compared to $10.283m for the same period then.

Commonwealth Bank’s profitability resurgence has largely been driven by a more than $63m positive reversal on loan loss provisions, as it was able to reverse $17.65m in impairment charges during the 2022 first half as more borrowers returned to work or full-time jobs post-COVID and were able to resume loan payments. This marked a major swing from the $45.796m worth of provisions taken during in 2021 amid ongoing pandemic-related restrictions.

Ms Albury acknowledged that Commonwealth Bank cannot rely on the “reversal” of previously booked COVID loan loss provisions for profits and growth in 2023, but said the lender was sufficiently optimistic about its 2022 performance and that of the overall economy - despite the ongoing cost of living crisis and fears of a US recession - to double quarterly dividends by a sum not far off $3m.

“This earning performance has resulted in an increase in shareholders’ equity of approximately 17 percent to $278.4m from $238.5m as of December 31, 2021,” she said of the near-$40m jump. “With our balance sheet as strong as it is, we felt it was the right time to be returning cash to shareholders in line with our quarterly dividend distribution before the height of the COVID-19 health and economic crisis.

“Our bank’s stronger earnings performance, which is tied to the larger economic recovery, prepared the ground for the 100 percent increase in the quarterly dividend distribution to shareholders, compared to the previous quarters of 2021 and 2022.

In particular, we have seen where the positive impact of the reversal of previously recognised impairment for credit losses has firmed. While we do not expect this reversal to play a role in the bank’s earnings performance beyond 2022, we are satisfied that our core business profits are strong and support increasing the profit return to shareholders..... We expect to fully realise the opportunities for further reversals by the end of the fourth quarter of 2022.”

Commonwealth Bank’s profits for the six months to end-June 2022 were not driven by its loan book or traditional organic growth. Top-line interest income was down by more than $8m or 12.1 percent year-over-year, standing at $60.036m compared to $68.303m, while net interest income was off by a similar margin. Total operating income, including fees and commissions, dropped almost $8.4m or 11.5 percent to $64.588m.

However, Ms Albury said customer deposits had increased by $37m during the 2022 first-half aided by Commonwealth Bank’s decision not to follow competitors by offering zero interest savings accounts. “Total deposits as of June 30, 2022, rest at $1.499bn compared to $1.462bn as of December 31, 2021,” she added. “This reflects an increase of 2.56 percent from the fiscal year-end, with no material shift in the distribution between demand and term funding.

“The bank has not taken a position to offer zero-interest on savings accounts, which separates it from others in the market. Additionally, the brand of our bank remains strong. We believe that people feel safe placing their deposits with us so we do not have to pay a premium above market rates on deposits to attract them.”

Commonwealth Bank views the rise in customer accounts and deposits as having helped to drive an increase in fee and commission income, which rose by more than $2m during the 2022 second quarter to $7.835m. This drove the half-year figure up by 12 percent to $11.613 compared to $10.371m for the prior year.

“A part of the growth in fee income is occurring because of increased customer accounts,” Ms Albury said, “and also, in 2021, a review of our bank’s fee schedule revised several fee-generating services ancillary to the bank’s loan and deposit portfolios. These are now being fully effected into the income of the bank for 2022. In addition, the bank’s management is focused on providing value-added services to customers which are fee income generating.”

Loan growth, in common with other commercial banks, has been harder to achieve with Commonwealth Bank’s net portfolio expanding by less than $5m to $772.37m during the 2022 first half. Ms Albury said loans to borrowers in the hotel and tourism industry “command a higher loan loss provisioning than other segments of the loan book”, which impacts the overall portfolio.

“We have not seen a material impact on our operations during the first half of 2022,” she added of cost and inflation pressures. “While the cost of operating has been impacted, our bank would have seen this impact on operating activities that do not have previously negotiated contract costs, and only on some large contracts that have reached end-of-life as of the mid-year.

Looking forward, Ms Albury said: “We remain cautiously optimistic and expect the factors underlying our first half-year earnings performance to continue along the same momentum and direction, particularly as we move closer to the end of the 2022 hurricane season. Our bank is expected to deliver earnings results in line with its pre-Dorian and pre-COVID-19 levels, and which have been boosted by the reversals of impairment expense on our loan book.”

Promising “a laser focus” when it came to managing loan delinquencies, she added: “The reversal of impairment expenses as a result of the economy moving into post-pandemic normalisation is not expected to exist and contribute to earnings performance in 2023, and this outcome is consistent with what has been seen across many financial institutions, both domestic and non-domestic.

“Notwithstanding this, the prospects for 2023 are favourable as the economic recovery firms, and as our bank has improved the credit quality of its existing loan book. We are cautiously optimistic about our growth in Abaco and Grand Bahama, where the pace of rebuilding those island economies has been slow, although new prospects are on the horizon.

“We will continue to have a laser focus on delinquency management, while simultaneously negotiating terms for qualified borrowers that are favourable to both the borrowers and the bank. The downside risks still exist given that the global economy cannot yet claim that it sits in a period of post-pandemic normalisation, global supply chain disruptions continue, elevated levels of inflation continue to persist, and the stress on government finances has not substantially waned.”