The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Commonwealth Bank yesterday said it beat 2022 profit targets by 10 percent as it used its record net income to return $18m to shareholders via two extraordinary dividend payments.

Tangela Albury, the BISX-listed lender’s vice-president and chief financial officer, told Tribune Business that 2022’s “unusual” $60m profitability was unlikely to be repeated this year with the performance largely driven by the reversal of COVID-related loan loss provisions and recovery of charged-off loans.

However, she added that Commonwealth Bank was aiming to match or beat its pre-COVID and Hurricane Dorian performance in 2019 as it aims to drive loan delinquency rates below historical levels. And, with deposits growing by 4 percent year-over-year, the personal loan specialist is aiming to convert those clients into borrowers.

In written replies to this newspaper’s questions, Ms Albury said Commonwealth Bank had paid a total six cents per share in extraordinary dividends as a result of 2022’s performance. This was split into two payments, with the first four cents per share payout taking place last November and the two cent balance occurring in February 2023.

“The total extraordinary dividend payment is approximately $18m to shareholders,” she confirmed. “The 2022 unaudited financial results will be the highest level of yearly profit in the history of the bank. Our 2022 unaudited financial results have exceeded our budgeted expectations by approximately 10 percent, as the strong rebound of the economy has facilitated the reduction of the bank’s non-performing loan book, as well as allowed for improvement in overall loan delinquency.

“We have seen the reversal of loan impairment expense in the first quarter largely hold, and this resulted in the bank meeting its full-year profitability goal at the end of the third quarter. The main drivers of the profit return were reversals of allowances for loan losses, along with recovery of previously charged-off loans.

“While the economic rebound is the underlying driver of this experience, our management team was focused on delinquency management and credit risk governance to improve the asset quality condition of the bank’s loan portfolio. These efforts of our team translated the improvements in the economy into improvements in our 2022 unaudited financial results.”

Commonwealth Bank produced a $72m reversal in the first nine months of 2022 from the near-$24m loss it suffered in 2021. However, Ms Albury acknowledged that this was driven by the recovery of loan loss provisions rather than credit portfolio or organic growth.

“We continued to focus on the organic components of our business,” she added of 2022. “That is, controlling interest expense, controlling charge-off loans, controlling our operating expenses, and identifying opportunities for growth of our non-interest income. Interest expenses, charged-off loans, and operating expenses were in line with budgetary expectations, and our non-interest income exceeded our budgetary expectations by approximately 13 percent.”

Ms Albury said Commonwealth Bank is “cautiously optimistic about improvements in the level of qualified borrowers” in 2023 as employment, wages and incomes continue to recover from COVID-19.

“As the economy continues to normalise and the rate of profitability trends towards historic averages, we plan to focus on the organic growth of our loan book and yields, delinquency management and improvements in the way we service our customers, which we expect to sustain the bank’s normal level of profitability,” she told this newspaper.

“Growth of interest income will come at a steady rate as we attract both new depositors and borrowers to the bank. Our customer deposit base has grown by approximately 4 percent year-over-year, and these new depositors are also potential customers for our loan products, so our plans are around harnessing this opportunity for loan growth.

“We are also focusing on our existing loan clients and their needs for expanded credit, as well as niche opportunities within the mix of our personal lending products of mortgages, consumer loans and credit card facilities. We also expect that our continued efforts to reduce our non-performing loan book will translate into increased interest income, and so delinquency management, inclusive of aggressive recovery of charge-off loans, will be key to growing top-line interest income.”

Commonwealth Bank’s loan delinquency rate dropped more than eight percentage points year-over-year at end-2022, Ms Albury said. She added: “Overall delinquency was at 11.25 percent as of December 31, 2022, compared with 19.43 percent on the same date in 2021, and our non-performing loan ratio has followed a similar trend. As the business moves into post-pandemic normalization, we expect the delinquency to trend toward historic averages.

“However, we believe that by continuing to focus on delinquency management, and where necessary adjusting our strategy and deployment of team resources more efficiently, we will be able to see delinquency rates trend lower than historic averages. This will not necessarily occur in 2023, but we expect it to occur over the bank’s current strategic horizon, subject to the economic headwinds that exist for The Bahamas.”

As for 2023’s profit expectations, Ms Albury said: “2022 was an unusual year for both The Bahamas and the bank, similar to how the years 2020 and 2021 were unusual. As we normalise our economy and the bank’s operations, there is no expectation that 2022 against 2023 will be comparable. What is the basis of comparison will be our pre-Dorian and pre-COVID normalised financial performance, and we expect to match or exceed that in 2023.

“We recognise that the bumper level of profitability that the bank is experiencing in 2022 is driven by the strong rebound of the economy of The Bahamas. To match or exceed 2022’s profitability would require a recurrence of the level of economic rebound we experienced in 2022.

“However, we are awake to opportunities around increasing our products and services, increasing our fee-generating opportunities, and, where possible, affecting our cost structure to be within budgetary expectations for those cost items not specifically targeted for growth in 2023.”