A couple walk past Commonwealth Bank automatic teller machines in Melbourne in this August 13, 2008 file photo. REUTERS/
SYDNEY: Commonwealth Bank of Australia CEO Ian Narev on Wednesday hit back at criticism of the banking sector as the nation's No. 2 lender posted its seventh straight record profit, saying strong banks were good for the economy as a whole.
CBA's cash profit of A$9.45 billion (US$7.27 billion) for the year to June 30, up 3% from the previous year, came days after it refused to pass on a full cut in official interest rates and triggered fresh calls for the banks to be reined in.
Opposition Labor Party leader Bill Shorten said the result showed the need for a high-powered judicial inquiry into the banking sector, while the Greens demanded banks pay a "too big to fail" levy for their implicit government guarantee.
Narev told analysts in a post-earnings call that CBA was walking a tightrope, meeting the expectations of its 2 million home loan customers, 11 million depositors and millions of retail shareholders who depend heavily on dividends.
"Our job is to continue to achieve that balance. Sometimes we are going to be unpopular by doing it but the alternative is to have a weaker bank and a weaker economy," he said.
Shorten rubbished the argument that the entire economy depended on the banks' outsized profits.
"If I have to make a choice between keeping Ian Narev or keeping the Australian people and the Australian economy improving, I will choose the Australian people and the Australian economy every time," he told reporters.
Australia's highly profitable major banks have underperformed the benchmark index this year, weighed by concerns about the impact of tougher capital rules, rising bad debts and slowing earnings growth after years of record profits.
They are also under mounting political pressure to reform what many see as unethical corporate behaviour following a series of scandals including insurance fraud and interest rate rigging.
Prime Minister Malcolm Turnbull has ruled out a Royal Commission inquiry into the sector, although the idea has significant support in parliament, including from minor parties whose clout has grown since an election last month.
But Turnbull was driven to act last week in response to public anger over the banks' decision to pocket some of the official rate cut, announcing that bank executives would be forced to appear before parliament's economics committee once a year to explain their decisions.
UNDER PRESSURE
Despite the record earnings, CBA's results confirm the glory days for Australian banks are over as its cash profit grew at its slowest pace since a drop in 2009.
Narev warned of the "impact of weaker demand, strong competition and increasing regulation" as the bank declined to raise dividends for the first time since 2009, unveiling a A$2.22 per share payout for a full-year dividend of A$4.20.
Net interest margins, a key gauge of profitability for banks, fell 2 basis points to 2.07%. Loan impairment expenses rose 27% but were still near record lows.
Even so, CBA has return on equity of 16.4% compared with minus 4.1% for Royal Bank of Scotland, minus 6.6% for Standard Chartered, 11.5% for Wells Fargo and 9.7% for JP Morgan Chase.
Shares in Sydney-based CBA were down 1.07% at A$77.57 at 0439 GMT, compared with a 0.2% drop in the broader market. - Reuters
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