The Tribune

• Second-best year not reliant on loan loss recovery

• But non-interest expenses 9% higher than forecast

• Deposit insurance premiums to double to $800,000

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

COMMONWEALTH Bank yesterday hailed its “second most profitable” year-ever through $63.5m in net income that was generated despite a near-91 percent drop on COVID loss provision write-backs.

Tangela Albury, the BISX-listed lender’s vice-president and chief financial officer, in written replies to Tribune Business questions said its bottom line - which exceeded pre-pandemic performance - had in 2023 been driven by its core banking business and loan book growth with “double digit” rises in interest and net-interest income.

One-off factors, such as the recovery of COVID loan loss provisions, were chiefly responsible for Commonwealth Bank posting its record $75.491m annual profit in 2022 - a result boosted by more than $25m in writebacks. But, despite that latter number shrinking to just $2.339m in 2023, Ms Albury said the consumer credit specialist beat its net profit forecast for the year by “double digits”.

Speaking after the bank’s full-year audited results were unveiled, she added that the $63.5m bottom line was achieved despite significant cost and expense pressures that saw Commonwealth Bank exceed its projected non-interest expenses (excluding loan loss impairments) by 9 percent or $7.6m.

Besides the return of a $3m annual Business Licence fee, the BISX- listed lender was also faced with an increase in general insurance costs due to a hardening reinsurance market that drove premiums higher across the Bahamian property and casualty market and surging energy costs due to Bahamas Power & Light’s (BPL) efforts to reclaim under-recovered fuel costs.

Ms Albury disclosed that such pressures are set to continue in 2024, with its premium paid to the Deposit Insurance Corporation to insure all bank deposits up to $50,000 in value set to double to $800,000. Despite this, she revealed that interest and fee income for the 2024 first quarter have exceeded prior year comparatives, and the bank plans to maintain its three cent quarterly dividend payouts for the full year.

“The 2023 net profits were ahead of budget expectations in double digits, and on target with our forecast net profit range for the year end,” Ms Albury told Tribune Business, attributing Commonwealth Bank’s performance to the continued post-COVID rebound of the Bahamian economy and the institution’s “laser focus on delinquency management and sound credit underwriting”.

“The 2023 financial results represent the second most profitable year in the bank’s history and exceeded its pre-COVID profitability,” she added. Commonwealth Bank’s interest income increased by 14.8 percent year-over-year, rising from $120.224m in 2022 to $137.961m for the year to end-December 2023, while net interest income was up by 17.3 percent at $120.766m compared to $102.97m.

Total income was ahead by 14.6 percent at $152.159m, as opposed to $133.048m the year before, while Commonwealth Bank’s expanded by more than $21.5m or 2.8 percent to hit $807.984m at year-end. Ms Albury said 2023’s performance was, for the first time since COVID hit, driven by the core lending business rather than loan loss impairment write backs.

“The financial results of operations in 2022 were significantly driven by releases of credit loss allowances into the Bank’s total profits of $25.1m,” she explained. “However, as of December 31, 2023, the consolidated reversal of impairment expense at $2.3m, a decrease of 91 percent, is only a minor contributor to the bank’s financial results.

“Instead, the bank has seen double-digit growth in both gross interest and net interest income, reversing the declining trend in both factors since the impact of COVID-19. Our bank’s ability to grow organically and position ourselves to benefit from the lift in the Bahamian economy supports the resilience of the bank’s balance sheet and core income-generating assets.”

Ms Albury said the 2023 figures were achieved despite the surge in cost pressures, which saw general and administrative expenses alone increase by more than $8m - from $78.093m in 2022 to $86.357m this time around.

“As of December 31, 2023, non-interest expenses, excluding impairment expense reversals on financial assets, totaled $91.4m compared to $82.7m in 2022, reflecting a modest increase of 11 percent from the prior year,” she told Tribune Business.

“While we have managed our costs exceptionally well against a budget of $83.8m, expenses were impacted by several non-controllable operating costs moving ahead of their budgeted expectations. The bank experienced licensing costs with the reintroduction of a business license fee on Authorised dealers (commercial banks) operating within The Bahamas; increased general insurance costs because of reinsurers repricing of the climate- based risks associated with operating in this (and neighbouring) jurisdictions; and increased costs of utility supplies, particularly the cost of electricity.

“The Business Licence fee is approximately $3m for 2023. We expect that its contribution will be the same for 2024, and have accounted for this business cost as part of our normal budgetary projections.” And those same cost pressures are unlikely to slacken in the current financial year.

“The key regulatory initiative for 2024 to impact the cost structure of the bank will be the risk in Deposit Insurance Corporation (DIC) premiums,” Ms Albury said. “This doubles for the bank in 2024 and will add $800,000 in general and administrative costs to the bank.”

However, Commonwealth Bank expects “to maintain three cents per share as the quarterly dividend for 2024, and our objective is to maintain a dividend payout between 65 percent and 75 percent of net profits”, she added. “This is consistent with our pre-Hurricane Dorian, and pre-COVID-19, dividend payout levels.

“The first quarter of 2024 is pleasing, with both interest income and fee income showing movements above the same period in 2023. However, we are monitoring the general and administrative costs, which have firmed increases over the same period in 2023.

“We are aligned with the Central Bank’s outlook for 2024. Therefore, we continue to see opportunities for the bank to expand targeted loan segments, improve our interest income and explore opportunities to service business owners and individuals in their demand for improved electronic payment services, generating increased fee income for the bank.

“The 2024 outlook for the bank is favourable, with macroeconomic forecasts for the economy in 2024 indicating that the economic growth of the Bahamian economy will normalise towards historical averages. The bank continues its plan to focus on the organic growth of our loan book and yields, delinquency management and improvements in how we service our customers, which we expect to sustain solid profits for 2024.”