The Tribune

• Commonwealth: ‘All cost control possibilities open’
• BISX-listed lender beating ‘expectations’ at half-year
• Pledges goal ‘not to maximise’ profits over bank fees

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Commonwealth Bank is eyeing investments in solar energy “to help control” electricity costs after its general and administrative (G&A) expenses jumped more than $6.5m for the 2024 half-year.

Tangela Albury, the BISX-listed lender’s chief financial officer, told Tribune Business in a series of written replies to this newspaper’s questions that “all opportunities for cost control remain open” after these expenses rose by 16.3 percent year-over-year for the first six months to $46.547m.

Besides Bahamas Power & Light (BPL) bills, she said multiple other “non-controllable” factors are driving Commonwealth Bank’s costs higher including the $3m annual increase imposed by the reinstatement of the Business Licence fee on the commercial banking industry. Premiums payable to the Deposit Insurance Corporation, which protects bank customers’ deposits, are also expected to double to $1.6m annually.

The G&A increase, which raised total non-interest expenses by 8.6 percent or nearly $3.5m for the 2024 half-year, growing them to $43.189m compared to $39.755m, was the only dampener on a six-month performance in which Commonwealth Bank came close to matching its prior year performance.

It achieved 95 percent of 2023’s $35.881m mid-year profits, coming in almost $1.8m less at $34.09m. Ms Albury told this newspaper that the half-year results were “ahead of expectations”, with the bank’s delinquency ratio for non-performing loans - credit that is 90 days or more past due for payment - dropping from 8.67 percent at the start of 2024 to 7.37 percent at mid-year.

With Commonwealth Bank expecting the 2 percent loan book growth seen for 2024 to-date to continue through the year-end, she addressed the recent controversy over commercial bank fees by asserting that the BISX-listed institution’s goal is “not to maximise” these charges but base price on the value delivered to consumers. She urged Bahamians to compare bank fees and “not assume all are doing the same thing”.

With net interest income up 3 percent year-over-year at $61.347m, and total income ahead of the prior year by more than $1.6m at $77.279m, Ms Albury said Commonwealth Bank is exploring “potential shifts” in how it manages costs it can control - such as energy bills - to ensure more revenue and top-line gains drop to shareholders via net profits.

“Several non-controllable expenditures have contributed to expanding operating costs for the bank,” she confirmed to Tribune Business. “The Business Licence tax has increased operating costs by approximately $3m annually since being reintroduced in 2023. The increase in depositors’ insurance premiums occurred in 2024 and is expected to double the annual 2024 costs to $1.6m.

“In addition, general insurance costs and other operating costs reflect inflationary level increases. We are considering potential shifts in managing our controllable costs, such as investment in solar options to help control the Bank’s electrical spending. However, all opportunities for cost control remain open.”

But, despite the cost pressures, Ms Albury voiced optimism that Commonwealth Bank will hit its target of paying between 65-75 percent of its profits out to shareholders as dividends. During the 2024 first half, some $23m was returned to investors via a combination of ordinary and extraordinary payments.

“The 2024 second quarter operating results are ahead of expectations and budget as our focused attention on delinquency management continues to exponentially benefit the bank,” she added. “We opened the year with an overall portfolio delinquency of 8.67 percent, which had declined to 7.37 percent as of June 30.

“Based on the credit quality reports of the Central Bank, it continues at a level below that of the industry. The main drivers underpinning our performance continue to be the stability of the underlying economy, our laser focus on controlling loan delinquency levels, and our efforts to price credit risk effectively.

“Credit production has been robust for 2024. Bearing in mind that normal loan amortisation or repayments naturally contract the loan book each month, our ability to grow the bank’s loan book is seen as a positive signal of the strength of our core loan products and customer service experience,” Ms Albury continued. 

“Year-to-date, we have seen our loan book expand by 2 percent and we expect it to continue along this trend as funding for back-to-school needs and holiday spending increases through to the end of the year.” Commonwealth Bank’s loan portfolio expanded by almost $15m during the 2024 first-half, growing to $822.819m from $907.984m.

And, given the recent furore surrounding commercial banking industry fees, Ms Albury said Commonwealth Bank’s priority in this area was not to maximise profits but base pricing on the value added to consumers while still earning a return on investment. She added that loan-related interest income, rather than non-interest fees and other sources, remain its core revenue driver.

“Our strategy is primarily around opportunities to add value to each customer and improve their experience with the bank, so to the extent possible that we can do that, we charge a fee,” the chief financial officer said. “Our goal is not to maximise the fees charged but to price based on what value we can provide the customer and still see a profitable return for the bank.

“Fundamentally, it is vital that when the Central Bank releases its periodic reports on fees charged by banks competing for the business, customers consider their options and not presume that all banks are doing the same thing or have the same approach. The bank is focused on interest income growth, and non-interest income growth is supplemental to our primary efforts.

“We periodically review the fees on existing products, which may result in a revision. However, at this time, the bank’s focus on transaction-based fee income from the perspective of increasing the usage of the bank’s services and the introduction of services from which new transaction-based fees can be derived. We do not anticipate non-interest income to expand significantly in its contribution to the Bank’s overall profitability in 2024.”

Ms Albury said Commonwealth Bank has also invested in improving its resiliency, and the restoration of operations “after a catastrophic event through the use of cloud computing”, as well as upgrading its online banking platform. It is also readying for the potential impact that artificial intelligence (AI) and other forms of Fintech (financial technology) will have on its business model moving forward.

Looking ahead, she added: “We are expecting to close in 2024 with strong operating results. The first half performance has the bank ahead of budget expectations, although slightly behind the actual performance of 2023.

“The prospects for 2025 and slightly further out present a higher level of uncertainty - firstly for the economy of The Bahamas, and then for the recent accelerated pace in Fintech with the use of AI technologies. However, we retain a cautiously optimistic posture on the economy and are having conversations to prepare the bank for the new Fintech impacts on our business model.”