Hayne hit of $1.2 billion a big drag on CBA’S full-year profit

COMMONWEALTH Bank’s full-year profit has fallen by a worse than expected 4.7 per cent and chief executive Matt Comyn says things could get even tougher if the Reserve Bank delivers on expected interest rate cuts.

Cash profit slipped to $8.49 billion at the nation’s largest lender, weighed down by a $1.2 billion royal commission-related hit.

CBA booked $918 million in customer remediation expenses as well as $358 million for risk and compliance programs related to failings such as those heard at the Hayne inquiry into the financial sector.

But operating income also slipped 2 per cent to $24.4 billion over the 12 months to June 30, with volume growth in lending and deposits more than offset by a five basis point decline in net interest margin to 2.1 per cent.

The impact of the Reserve Bank’s June and July interest rate cuts has yet to fully flow through to the bank’s financial results and Mr Comyn said future cuts – the first of which is expected in November at the latest – could hurt even more.

“We’ve priced in one more cut ... and the overall assumption that each additional rate cut will cost more is right,” Mr Comyn said.

CBA’S net profit fell 8.1 per cent to $8.57 billion – below UBS predictions of $9.1 billion, while cash profit fell short of the $8.95 billion expected.

The cost of the royal commission clean-up bill has hit $2.1 billion for CBA, with $166 million refunded to customers in FY19 and another $100 million expected to be repaid by the end of the calendar year.

The bank also said it had forgone $275 million in revenue through deliberate choices to ensure better customer outcomes.

Operating expenses for FY19 increased by 2.5 per cent to $11.37 billion as the bank added 600 risk and compliance staff during the year as well as additional staff to work on remediation programs.

The bank’s risk and compliance-related spending was 64 per cent of its total investment in FY19, up from 50 per cent last year.

CBA, which has already significantly reduced its exposure to financial advice, also announced its exit from the last of its aligned financial advice businesses. It will stop providing licensee services through Financial Wisdom by June and help it close.

“The key takeaways from my perspective are we’re making very good progress on becoming a simpler and better bank,” Mr Comyn said.