The Commonwealth Bank has hit back at predictions it may need to cut its highly prized dividend, signalling it expects to maintain the dividend policy even in the face of tougher capital rules for banks.
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As the banking rout deepened on Wednesday and other banks fell to new multi-year lows, the country's biggest lender also tried to calm the nerves of investors, saying the plunge on equity markets was "out of proportion" with underlying economic trends.
CBA on Wednesday said cash profits in the first half grew 4 per cent to $4.8 billion, boosted by strong returns in its flagship retail banking arm and little deterioration in charges for bad loans.
It kept the interim dividend flat at $1.98 a share.
It is the first time it has not increased the dividend for the December half since late 2008, near the peak of the global financial crisis.
The result comes as Australian bank share prices have been caught up in a global rout of financial stocks.
Global fears about banks' exposure to emerging markets are among the reasons for the plunge, but experts also highlight the pressure on Australian bank returns from a softer economy and tougher rules that will force banks to be better capitalised, making them less profitable.
Several fund managers expect no dividend growth and potential dividend cuts from the banks.
Chief executive Ian Narev sought to dampen these concerns, saying he expected CBA would maintain its policy of paying out 70 per cent to 80 per cent of profits as dividends, even if capital requirements climbed higher, as the regulator said they probably would.
He said the board formed its view on dividends after considering the outlook for regulation, credit quality and loan growth.
"When we put all of those things together, we're very comfortable with the capital levels we've got at the moment, and we're comfortable with paying that dividend within the guidance that we've given," he said in an interview.
"On current capital planning, we expect that to continue to be the case."
CBA's return on equity – a key gauge of shareholder returns – fell 140 basis points to 17.2 per cent after returns per share were diluted by the bank's move to raise $5.1 billion in new equity capital last year.
CLSA analyst Brian Johnson had argued it would make sense for CBA to cut its dividend after the bank issued new shares in its $5.1 billion capital raising last year.
Arnhem Asset Management managing partner Mark Nathan said he believed bank dividends would remain pressured by rising capital requirements, especially if banks began lending more, which required them to set aside more capital.
"On balance, I would not be surprised if we see some modest cuts in dividends across the board, and certainly no bank wants to go first," Mr Nathan said.
CBA's profit was marginally ahead of expectations. There was only a small decline in its charges for bad debts.
Loan impairment expense rose 3 per cent from the June half to $564 million, and the share of soured loans in its oil and gas portfolio rose 0.8 per cent to 1.9 per cent as the oil price tanked. Nonetheless, as a proportion of its loans, impaired assets were flat at 0.17 per cent.
Mr Narev said CBA was not "impervious to losses" from the plunge in commodities, but its loan book had held up well so far, and the recent swings on equity markets were "out of proportion to the underlying trends" in the economy.
He also argued Australian banks were different to the overseas banks hit by the most savage share price falls, which were more geared towards investment banking and trading on financial markets.
"The Australian banks' business models are generally very different to some of the banks that you've seen caught up in some of the more difficult situations globally," he said. "But, to some extent, we are all going to be subject to people's views on financial systems and the sector."
CBA shares gained 1.8 per cent to $74.20. The stock has fallen 13 per cent so far this year. CBA's dividend will be fully franked and paid to shareholders on March 31.
Macquarie analyst Victor German said: "While there is something for both the bulls and the bears in this result, on balance we expect this result to give the market some confidence in the broader sector, particularly after the recent sell-off."
