Operating performance, earnings

Net interest income increased 6 per cent on pcp, reflecting 9 per cent growth in average interest earning assets. This was driven by solid volume growth and revenue momentum across the business. Group transaction balances grew 21 per cent and above-system growth was achieved in household deposits (up 10.6 per cent) and business lending (up 6.8 per cent, excluding Bankwest). A balanced approach to margin over volume in home lending produced growth of 6.5 per cent, slightly below system. ASB saw 12 per cent growth in business and rural balances. Overall, net interest margin was flat on the prior half at 2.06 per cent.

Other banking income increased 4 per cent, due to higher profits from associates and solid growth in fees and commissions, partly offset by derivative valuation adjustments.

Growth in insurance and funds management income of 17 per cent and 6 per cent, respectively, led to a 10 per cent increase in underlying profit after tax for the Wealth Management division.

Ongoing investment spend, inflation and unfavourable foreign exchange movements resulted in a 6.1 per cent increase in total operating expenses. On an underlying basis, expenses grew 3.8 per cent as a result of cost discipline in business units. Total investment spend increased 14 per cent, with the majority earmarked for productivity and growth initiatives.

Loan impairment expense increased 3 per cent on the prior half to $564 million, and the loan loss ratio remained stable at 17bpts.

Cash net profit after tax (NPAT) increased 4 per cent to $4,804 million, 6 per cent higher on the prior half.

Dividend, returns

In declaring a fully franked dividend of $1.98, a dividend payout ratio of 70.8 per cent, the Board considered the long-term sustainability of the dividend and maximising utilisation of franking credits. The dividend is unchanged from the prior corresponding period.

Return on equity was 17.2 per cent, down 140bpts, due to the increased equity base post the $5.1 billion capital raising.

Balance sheet strength, capital, funding, liquidity, provisioning

The Group's balance sheet and conservative positions on capital, funding and liquidity have been strengthened in the first half.

Basel III Common Equity Tier 1 (CET1) capital increased 100bpts to 10.2 per cent on an APRA basis (14.3 per cent on an internationally comparable basis), reflecting organic capital growth and the proceeds of the rights issue. This puts the Group in the top quartile of banks globally for capital adequacy.

Growth in customer deposits of 9 per cent to $500 billion increased deposit funding to 64 per cent of total funding, up 1 per cent.

The Group's liquidity coverage ratio increased to 123 per cent as at 31 December 2015, up from 120 per cent at the end of the prior half, with the Group continuing to benefit from a strong position in more stable deposits.

Provisioning levels remain prudent and there has been no change to the economic overlay.

Customer-focused strategy

Continued focus on the customer has translated through to further improvements in customer satisfaction rankings. The Retail Bank was outright number one in the Roy Morgan Research Retail Main Financial Institution (MFI) Customer Satisfaction survey throughout the six months ended December 2015; and our share of MFI was 34.1 per cent, compared to 19.4 per cent for the closest peer bank. We also ranked equal first for business customer satisfaction in the DBM Business Financial Services MFI Monitor.

Innovation and technology

Strong uptake of digital and mobile services in the half shows the benefit of consistent innovation and investment in these areas. Tap & Pay card numbers have more than doubled on the prior half, Cardless Cash transactions grew 96 per cent, and the value of transactions via the CommBank app was up 27 per cent. The volume of transfers via mobile now exceeds BPAY volumes through Netbank. We are also seeing customers increasingly turn to mobile for product purchases with mobile now accounting for 40 per cent of Retail Banking Services sales.

In the half we made additional future-focused investments in technology and skills. We provided $10 million to help Australian researchers build the world's first silicon-based quantum computer, and committed $1.6 million to develop a centre of expertise for cyber security education with the University of New South Wales. We launched a series of blockchain workshops for industry and regulators, and are collaborating with other international banks on blockchain trials.

The objective of our investment in innovation is to deliver customer value through world-class technology and operations.

Commonwealth Bank of Australia issued this content on 10 February 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 09 February 2016 23:34:49 UTC

Original Document: https://www.commbank.com.au/about-us/news/media-releases/2016/commonwealth-bank-of-australia-interim-result-highlights-2016.html