Commonwealth Bank reveals $1.5 billion COVID-19 provision with Q3 result

The Commonwealth Bank of Australia (ASX:CBA) share price will be on watch today after releasing its Q3 result and revealing a $1.5 billion COVID-19 hit…

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The Commonwealth Bank of Australia (ASX: CBA) share price will be one to watch today after the release of its third quarter update.

How did Commonwealth Bank perform in the third quarter?

For the three months ended March 31, Australia's largest bank delivered an unaudited statutory net profit of approximately $1.3 billion.

The bank's cash net profit from continuing operations also came in at approximately $1.3 billion during the quarter. This was a 41% reduction on the average quarterly cash net profit it achieved in the first half and driven by remediation charges and COVID-19 provisions. In respect to the latter, Commonwealth Bank has made an additional credit provision of $1.5 billion for the potential longer term impacts of COVID-19.

Positively, the bank's operating income was flat for the period. Management notes that its strong operational execution is driving core volume growth, offset by the impacts of a lower cash rate. Operating expenses (excluding notable items) was down 1%, reflecting seasonal factors and ongoing simplification savings.

This ultimately led to Commonwealth Bank finishing the period with a strong CET1 capital ratio of 10.7%. This includes the payment of its interim dividend on March 31 and the COVID-19 provision.

Strength and resilience on display.

The bank's chief executive officer, Matt Comyn, believes this result demonstrated the strength and resilience of the bank.

He said: "The strength and resilience of the Bank remained evident through the March quarter. Our people have continued to serve our customers diligently and professionally under challenging circumstances."

The chief executive also believes the bank is well-placed to navigate the current crisis and support consumers and businesses.

He commented: "The strength of the Bank means we are well placed to support our customers and the broader Australian economy. Since the onset of the COVID-19 pandemic, our package of support measures has included over $9 billion in support to ~100,000 businesses, repayment deferrals on approximately 240,000 loans, reduced interest rates for borrowers, increased interest rates for depositors and waived fees and charges."

"Our strong capital position enabled us to deliver 1H20 dividend payments totalling $3.5bn to our ~830,000 shareholders during March, providing a further direct cash benefit into the economy," he added.

Asset sale.

In addition to its update, Commonwealth Bank revealed that it has entered into an agreement to sell a 55% interest in Colonial First State to private equity firm KKR.

The transaction implies a total valuation of $3.3 billion, which will result in CBA receiving cash proceeds of approximately $1.7 billion from KKR. The sale price represents a multiple of 15.5x pro forma net profit after tax of approximately $200 million.

The two parties intend to undertake a significant investment program, strengthening the position of Colonial First State as one of Australia's leading retail superannuation and investments businesses.

Management notes that the transaction represents the final stage of its previously announced planned exits from various wealth management activities over recent years.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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