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Dr. Mark Sinclair
Dr. Mark Sinclair, Mentor Education

CBA records record profit yet holds back on dividends, preserving capital for expected economic downturn

20 August 2013

Ian Narev chief executive of The Commonwealth Bank of Australia has given a timely warning to homeowners suggesting not to take on excessive debt speculating that the current economic conditions are too risky.

The CBA head has given the warning as the bank’s profit rose 10 per cent to $7.82 billion – the largest profit in bank profit in Australian corporate history.

Despite the result, the bank declined to pay shareholders a special dividend, arguing that it needed to preserve capital as a safeguard against an economic downturn.

Mr Narev hasn’t been as adamant with his views on the current speculation regarding the ‘imminent property bubble’ and commented that “the bank remained on guard as low interest rates spurred more borrowing and borrowers could get hit when the Reserve Bank of Australia started increasing interest rates again.” The CEO also warned borrowers on the inevitable rates rise commenting that “when interest rates go up, which they will at some point, the loan repayments they have taken on is commensurate with what they will be able to do in a higher interest rate environment.”

In light of the record profit The CBA has reiterated that they are a significant contributor to the tax system having paid some $3 billion in tax a year. Furthermore, investors will pocket a final dividend of $2 a share, taking the total payout for the year to $3.64, an increase of $3.34 from last year.

The bank’s decision to continuing to maintain a conservative approach while choosing not to pay a one-off special dividend as some investors had hoped had more to do with uncertainty regarding new global banking regulations, and the threat of an economic downturn.

Ian Narev CEO of The CBA

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