Commonwealth Bank has made some adjustments to its financial reporting ahead of the announcement of its half-year results next week, reflecting the simplification of its operating model following several asset sales and a review of its lending operations.
The most significant impact is a restatement of the bank’s net interest margin for the June and December half-year reporting periods last year, with NIM increasing in each of those periods by 5 basis points.
CBA has flagged a loss of A$85 million for its insurance arm for the December half due to claims from customers affected by storms during October.
And it has also provided an update on the capital and financial reporting impact of its most recent divestment, a majority stake in Colonial First State.
The sale of 55 per cent of CFS to investment company KKR was completed on 1 December last year. CBA will retain the other 45 per cent. The sale proceeds resulted in a 32 bps increase in the bank’s common equity tier 1 capital ratio.
Changes to the bank’s operating model have resulted in the reclassification of some portfolios, with a transfer of customers between retail banking, business banking and institutional.
These changes have no impact on the group’s earnings but divisional income statements and balance sheets have been adjusted. There has been a shift of around 2 per cent in cash profit from retail banking to business banking, while institutional banking and New Zealand are largely unchanged.
There are also some changes resulting from a review of corporate and business lending limits and drawdown data, which identified a sustained increase in utilisation levels for certain products. Facility and line fees on these products have been reclassified from other banking income to net interest income.
The results was an increase of $234 million in net interest income in the June and December halves and a $229 fall in other banking income. There was no impact on group earnings.
Significantly, the adjustments resulted in a 5 bps increase in the bank’s net interest margin for the June and December halves – up from 204 to 209 bps in the June half and from 201 to 206 bps in the December half.
The bank said the revised accounting treatment of facility and line fees is in line with Australian Accounting Standards.